Refer to the Reserve Bank news release below.Use the AD/AS model to answer how each of the economic factors stated are affecting inflation and economic growth.

Official Cash Rate unchanged at 1.5 percent

Date 26 June 2019

The Official Cash Rate (OCR) remains at 1.5 percent. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives.Domestic growth has slowed over the past year. While construction activity strengthened in the March 2019 quarter, growth in the services sector continued to slow. Softer house prices and subdued business sentiment continue to dampen domestic spending.The global economic outlook has weakened, and downside risks related to trade activity have intensified. A number of central banks are easing their monetary policy settings to support demand. The weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels.We expect low interest rates and increased government spending to support a lift in economic growth and employment. Inflation is expected to rise to the 2 percent mid-point of our target range, and employment to remain near its maximum sustainable level. Given the downside risks around the employment and inflation outlook, a lower OCR may be needed.

1.Construction Activity (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

2.Global Economy (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

3.Business sentiment (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

4.Monetary policy settings (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

5.Fiscal (government tax and spending) policy. (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

6.Services sector (choose the only one correct answer)

A. higher inflation and higher economic growth

B. higher inflation and lower economic growth

C. lower inflation and higher economic growth

D. lower inflation and lower economic growth

E. higher inflation but the impact on growth is uncertain

F. lower inflation but the impact on growth is uncertain

G. higher growth but the impact on inflation is uncertain

H. lower growth but the impact on inflation is uncertain

7.Which of these statements is correct?

A. Inflation at this time was zero

B. inflation at this time was likely within the RBNZ policy target band but below the mid-point

C. inflation at this time was likely within the RBNZ policy target band and above the mid-point

D. Inflation at this time was above the upper bound of the RBNZ policy target band

8.Based on the information in this news release, what do you expect the RBNZ to do to the OCR in the near future?

A. they are likely to lower it

B. they are likely to raise it

C. they are likely to leave it unchanged

D. it is not possible to say what the RBNZ will do as they usually surprise people

E. what the RBNZ does next will depend on what the Finance Minister instructs them to do