Question 20N.1.HL.TZ0.a
| Date | November 2020 | Marks available | [Maximum mark: 10] | Reference code | 20N.1.HL.TZ0.a |
| Level | HL | Paper | 1 | Time zone | TZ0 |
| Command term | Explain | Question number | a | Adapted from | N/A |
Explain why there is a possible trade-off between the unemployment rate and the inflation rate in the short run.
[10]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definitions of unemployment (rate), inflation (rate)
- diagram of the short-run Phillips curve to illustrate the trade-off between inflation and unemployment and AD/AS diagram to support the explanation
- explanation that, in the short-run, if aggregate demand in the economy increases, this would lead to increase in national output, forcing firms to hire more workers and decreasing the unemployment rate, while simultaneously increasing the inflationary pressures in the economy, and/or vice versa
- examples of countries that have possibly experienced a trade-off between inflation and unemployment.
Candidates were expected to focus their answers on the negative short run relationship between inflation and unemployment and explain it with the help of the AD/AS model. The best answers used both the short-run Phillips curve diagram (to show the alleged negative relationship, and therefore trade-off, between the inflation rate and the unemployment (rate) in the short run) and AD/AS diagram (to explain why there may be a negative relationship between inflation and unemployment in the short run). Both diagrams were usually done well but many candidates found it difficult to use both diagrams to support a coherent and complete explanation. A common mistake for candidates when trying to link the two diagrams was to incorrectly connect points on the two vertical axes with a dashed line as if both axes measure inflation.
