Question 23M.1.SL.TZ1.2
| Date | May 2023 | Marks available | [Maximum mark: 25] | Reference code | 23M.1.SL.TZ1.2 |
| Level | SL | Paper | 1 | Time zone | TZ1 |
| Command term | Discuss, Explain | Question number | 2 | Adapted from | N/A |
Explain two costs of deflation.
[10]
Refer to Paper 1 markbands for May 2022 forward, available under the "My tests" tab > supplemental materials.
Answers may include:
- Terminology: deflation.
- Explanation: of any two costs of deflation such as uncertainty, redistributive effects, deferred consumption, association with high levels of cyclical unemployment, risk of bankruptcies, negative economic growth/recession, an increase in the real value of debt, inefficient resource allocation and policy ineffectiveness.
- Diagram: use of an AD/AS diagram showing AD shifting to the left or AS shifting to the right.
A maximum of [6] should be awarded if only one cost is considered.
Assessment Criteria
Part (a) 10 marks
This was the least popular question and one which presented difficulties for many candidates. Many explained the causes of deflation, rather than the costs. Those who did explain costs did not present a clear explanation of two distinct costs. The responses often contained mention of several costs, but none were explained in any detail and were often all part of the same cost. Disinflation was often confused with deflation. There was usually a decent diagram for deflation.
Using real-world examples, discuss the view that high inflation is a more significant problem than high unemployment.
[15]
Refer to Paper 1 markbands for May 2022 forward, available under the "My tests" tab > supplemental materials.
Answers may include:
- Terminology: inflation, unemployment.
- Explanation: explanation of the view in terms of the various costs of inflation such as uncertainty, redistributive effects, effects on saving, damage to export competitiveness, impact on economic growth, inefficient resource allocation.
- Diagram: AD/AS diagram(s) showing inflation and/or demand-deficient unemployment, and/or a demand for and supply of labour diagram to show structural unemployment.
- Synthesis (discuss): a challenge to the view in terms of the various costs of unemployment such as the various economic, social and personal costs; the importance of the types of inflation and unemployment occurring, the duration and rates of inflation and unemployment, the relative difficulty of implementing policies to address inflation and unemployment; consideration of “more significant” and the possibility that they are both equally serious.
- Examples: real-world examples of the impact of high rates of inflation and unemployment.
N.B. It should be noted that definitions, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Assessment Criteria
Part (b) 15 marks
This question was challenging for many of the candidates. Most were unable to produce a response that compared the costs of inflation with the costs of unemployment which would have been the easiest and most logical approach to this question. Many candidates focused on the policies used to tackle inflation and unemployment without using this discussion to answer the question.