The New Zealand Government responded to the COVID-19 pandemic in various ways, including the strict border restrictions and the repeated Lockdowns since March 2020. They have substantial impacts on many industries, including travel and transportation, tourism, hospitality, education, trade, etc.

On 16 March 2020, the Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) from1% to 0.25%and would keep the OCR at this level for at least the next 12 months. The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.

How would this policy change affect the following variables in New Zealand?

• aggregate demandandthe price level (using the AD-AS diagram)
• the supply of loanable fundsandthe market interest rate (using the diagram for the loanable funds market)
• the relative attractiveness of NZD-denominated assets(no diagram needed)
• the supply of the NZ dollarandthe exchange rate of the NZ dollar (using the diagram for the currency market)
• exports and imports as well as net exports. (no diagram needed)

You are required to illustrate your findings with theneatly drawn and labelled diagrams.