Question 20N.1.HL.TZ0.b
| Date | November 2020 | Marks available | [Maximum mark: 15] | Reference code | 20N.1.HL.TZ0.b |
| Level | HL | Paper | 1 | Time zone | TZ0 |
| Command term | Discuss | Question number | b | Adapted from | N/A |
Discuss the view that the redistribution of income is the most important impact that inflation has on an economy.
[15]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definition of inflation
- AD/AS diagram to show the increase in the price level or a Lorenz curve to show changed distribution of income
- explanation that (unexpectedly) high inflation affects positively the real income/wealth of borrowers and the groups in society with variable income while affecting negatively the real income/wealth of lenders and the groups in society with fixed income
- examples of countries that have experienced inflation with attempt to identify consequences of inflation
- synthesis or evaluation (discuss).
Discussion may include: consideration of alternative impacts of inflation (such as a loss of export competitiveness, increases in short-run economic growth, decreases in savings and increases in uncertainty resulting in lower investment and hence lower long-run economic growth, “menu costs”) with the candidate making judgment with regard to what might be the most important impact and whether or not the candidate feels the potential redistributive effect is the most significant impact of inflation, the importance of how high the inflation rate is, the difference between expected and unexpected inflation.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
NB It should be noted that definitions, diagrams, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.
Candidates were expected to focus on the impacts of inflation in their answers, but many candidates choose to elaborate on the types and causes of inflation instead. A common mistake was to confuse the impacts of inflation with the impacts of increasing aggregate demand (without explaining why inflation may lead to increasing aggregate demand in the short run in order to make their answer relevant to the specific demands of the question).
