The AD/AS Model
This curve shifts to the right when consumer spending, investment, or net exports increase.
Aggregate Demand (AD) curve
This type of inflation is caused by an increase in aggregate demand, such as from a decrease in the OCR
demand-pull inflation
In the equation MV=PQ, these are the four components represented by the letters.
Money supply (M), Velocity of circulation (V), Price level (P), and Real output (Q)
This is a negative impact of disinflation on households, as lower interest rates reduce the incentive to perform this action
Savings
This is the name for the weighted basket of goods and services commonly purchased by New Zealand households used to measure inflation.
Consumer Price Index (CPI)
This is the effect on the price level and real GDP when the Aggregate Supply (AS) curve shifts to the left.
an increase in the price level and a decrease in real GDP
This type of inflation is caused by an increase in the costs of production for firms, such as higher employer KiwiSaver contributions
cost-push inflation
Assuming V and Q are constant, a 2% decrease in the money supply (M) will cause ________ to the price level (P).
2% decrease
This group benefits from disinflation because their costs of production do not increase as quickly, leading to higher profitability and business confidence.
Firms
This government agency is responsible for comparing the prices of items in the CPI basket from one period to the next.
Stats NZ
An increase in employer contributions to KiwiSaver causes the costs of production to increase, shifting this curve to the left.
Aggregate Supply (AS) curve
The term for a general and sustained increase in the price level, such as the 7.3% increase in 2022.
Inflation
In the equation MV=PQ, this variable represents the speed at which money changes hands in the economy.
Velocity of circulation (V)
This group benefits from disinflation because the prices of goods are not increasing as quickly, which helps maintain their purchasing power.
households
This is the name for the total value of all goods and services produced in an economy, shown on the horizontal axis of the AD/AS model.
Real GDP
A decrease in the OCR makes borrowing cheaper, which increases consumer spending, investment, and net exports, causing a shift in this curve.
Aggregate Demand (AD) curve
The term for a decrease in the rate of inflation, such as when it falls from a high level to 2.5%.
Disinflation
If both the money supply (M) and the velocity of circulation (V) decrease, this will be the combined impact on the price level (P).
A decrease in the price level greater than the individual percentage changes
A decrease in the OCR lowers the cost of borrowing for businesses, which encourages more of this type of spending
Investment spending
In the aggregate demand equation, AD=C+I+G+(X−M), this component represents spending by consumers.
consumer spending (C)
A decrease in the OCR has a more significant impact on inflation than increased KiwiSaver costs because it affects multiple components of this economic measure
(AD=C+I+G+(X−M))
Between a decrease in the OCR and an increase in employer KiwiSaver contributions, which one has a larger impact on inflation and why?
OCR because the resulting shift in the AD curve is greater than the shift in the AS curve
If the money supply (M) decreases by 2%, but the velocity of circulation (V) increases by more than 2%, this will be the resulting impact on the price level (P).
an increase in the price level
During disinflation, firms may find it harder to do this because most other goods and services are not rising in price
raise prices and increase profit margins
What will be the effect of current decrease in OCR to 2.5% have on net exports?
A decrease in this interest rate causes the New Zealand dollar to depreciate, which in turn increases net exports.