Please describe the change(s) in each question below and explain why the adjustments you have described occur with diagram for each question. Answer questions with reference to Policy assessment 1.

1) Discuss how and why "offshore labour supply [being] constrained" affects the New Zealand labour

market, and has "contributed to historic low in unemployment". If you wish to illustrate your answer with an AD-AS diagram, state what assumptions you make about the AD, SRAS and LRAS curves. For this question you may, for example, assume that the AD curve has remained fixed

2. Discuss the effect of "higher oil prices and... supply-chain disruptions" on global prices for New

Zealand's imports, New Zealand's productive capacity and inflation. How would these two changes

be represented in an AD-AS diagram? For this question, assume that the AD and LRAS curves do not

shift.

3. State the key reasons why the RBNZ "increased the Official Cash Rate (OCR) to 1 percent" in its

February 2022 decision. Explain the logic behind the reasons given and why [the RBNZ believes] an

OCR increase is an appropriate response. Where relevant, you may refer to your answers from B1

and B2 above.

CHAPTER 1 Policy assessment Tena koutou katoa, welcome all. The Monetary Policy Committee today increased the Economic capacity pressures have continued to Official Cash Rate (OCR) to 1 percent. The Committee tighten. Employment is now above its maximum also agreed to commence the gradual reduction of sustainable level, with a broad range of economic the Reserve Bank's bond holdings under the Large indicators highlighting that the New Zealand Scale Asset Purchase (LSAP) programme - through economy continues to perform above its both bond maturities and managed sales. current potential. The Committee agreed it remains appropriate Headline CPI inflation is well above the to continue reducing monetary stimulus so as Reserve Bank's target range, but will return to maintain price stability and support maximum towards the 2 percent midpoint over coming years. sustainable employment (MSE). The near-term rise in inflation is accentuated by higher oil prices, rising transport costs, and the The level of global economic activity is generating impact of supply shortfalls. These immediate relative rising inflation pressures, exacerbated by ongoing price movements risk generating more generalised supply disruptions. The pace of global economic price rises, especially given the current domestic growth has slowed however, due to the general capacity constraints. elevated uncertainty created by the persistent impacts of COVID-19, and clear signals that monetary The Committee agreed that further removal of conditions will tighten over the course of 2022. monetary policy stimulus is expected over time given the medium-term outlook for growth and In New Zealand, underlying strength remains in employment, and the upside risks to inflation. the economy, supported by aggregate household and business balance sheet strength, fiscal policy Meitaki, thanks. support, and continued strong export returns. However, some short-term economic disruption is expected given the current growing COVID-19 health challenge. The high vaccination rates across New Zealand will assist significantly to reduce this disruption. Adrian Orr Governor