✓ Choose... The RBNZ lowers the OCR. Interest rates in the wider economy fall. Trading banks increase the amount they borrow via their settlement accounts. The money supply increases. The demand for money increases. The OCR rises. The Reserve Bank increases the money supply.

✓ Choose... The RBNZ lowers the OCR. Interest rates in the wider economy fall. Trading banks increase the amount they borrow via their settlement accounts. The money supply increases. The demand for money increases. The OCR rises. The Reserve Bank increases the money supply.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter15: The Federal Reserve System And Monetary Policy

Section15.2: Money Supply And The Economy

Problem 5R

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Suppose that the Reserve Bank "loosens" monetary policy. In what order do events occur when this happens? Choose for the first, second, third and fourth

Choose...
The RBNZ lowers the OCR.
Interest rates in the wider economy fall.
Trading banks increase the amount they borrow via their settlement accounts.
The money supply increases.
The demand for money increases.
The OCR rises.
The Reserve Bank increases the money supply.

Definition Definition Policy implemented by the central bank of a country (such as the Federal Reserve in the United States) to achieve certain macroeconomic objectives. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.

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