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Question 19N.3.HL.TZ0.2e

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Date November 2019 Marks available [Maximum mark: 1] Reference code 19N.3.HL.TZ0.2e
Level HL Paper 3 Time zone TZ0
Command term State Question number e Adapted from N/A
e.
[Maximum mark: 1]
19N.3.HL.TZ0.2e

The information in Table 1 refers to Country A (base year: 2011).

Table 1

The central bank of Country A aims to achieve price stability, defined as “inflation below but close to 2 % annually”.

(e)

State one reason why monetary policy is considered to have limited effectiveness in increasing aggregate demand if an economy is in a deep recession.

[1]

Markscheme

Answers may include:

  • Interest rates are already close to zero.
  • Spending depends on confidence/indebtedness as well as interest rates.
  • Money demand may be highly sensitive (elastic/flat) with respect to interest rates.
  • Investment/consumption may not be sensitive to changes in interest rates.

Any other valid reason.

Award [1] for one possible reason.

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