IB Economics: Monetary Policy, reduced interest rates stimulate the economy

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The Reserve Bank of New Zealand, another bank to cut its lending rate to boost growth

In line with the European Central Bank, the Reserve bank of New Zealand (RBNZ) has reduced its interest rate to a record low of 2.25%, as it fears the slowing down of global growth.

As the world’s largest dairy exporter, New Zealand has been facing challenges due to falling global price of milk (is Europe over subsidising it’s dairy farmers? Is this fair?) together with the slowdown of China (one of its major trading partners).

Inflation is also a concern for New Zealand at 0.1% compared to a target range of 1-3%.

IB students, Think about:

  1. Whether government subsidies are fair to the global market?
  2. Should governments intervene in the free market pricing for dairy products
  3. Why low inflation is not always desirable for an economy
  4. Do read the link to the article. Top scoring IB answers need theory that is supported by relevant examples 

 

Link to BBC article: New Zealand cuts interest rates for the fifth time since June, 10 March 2016