1. (a) (i) Inflation Targeting

An inflation targeting is a monetary approach used by government as a strategy to maintain the interest rate at a certain level. This normally involve up to two parties which are a government and a central bank that are responsible in keeping the price within a specific range. They would alter the interest rate in order to achieve favourable level of interest rate to keep away inflation in an economy. In New Zealand, the targeted inflation rate was 1 per cent to 3 per cent as desirable range (Reserved Bank of New Zealand, 2007).

However, this policy able to protect the business sectors in New Zealand especially the University education sector. Education was as crucial contributor to increase living standard of New Zealander. The University education sector was not much differ from other sector because it is like a business to offer employment and increase production growth. The goal of Reserved Bank of New Zealand set an inflation rate range of 1 per cent to 3 per cent is to maintain the equilibrium of price and avoid fluctuation (Parliamentary Library, 2002). As the price is stable, it will attract more foreign student to study in New Zealand and the demand of the New Zealand dollars would be increasing since the education system is comparable to world leading education.

(a) (ii) Policy Target Agreement

Policy Target Agreement is the mutual agreement between the Governor of the Reserved Bank of New Zealand and New Zealand Government. This agreement goal is to keep economy from minimum inflation and maintain the price stability. The Reserved Bank of New Zealand was also responsible in monitoring and measuring the level of prices. There is various way of measuring the inflation and Consumers Price Index (CPI) was one of the measuring tools used in the Policy Targets Agreement (Reserved Bank of New Zealand, 2007).

This tool will record the transaction of prices change from buying goods and services by New Zealand household and the percentage of the change will be the CPI inflation. Using this tool, the price of the currency would be under control and services price from University education sector is under supervision of the Reserved Bank of New Zealand. Reserved bank would maintain the inflation rates of 1 per cent to 2 per cent to avoid any inflation occur. The qualities of the New Zealand Education system itself are already famous among education system among the world, if the prices of the education services are low, it will attract more and more foreign student. Such agreement not even beneficial to education system itself but also bringing advantages to economy whereby the education system in New Zealand is comparable and competitive to other countries in term of services price.