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Question SPM.1.HL.TZ0.3b

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Date May specimen first teaching 2021 Marks available [Maximum mark: 15] Reference code SPM.1.HL.TZ0.3b
Level HL Paper 1 Time zone TZ0
Command term Discuss Question number b Adapted from N/A
b.
[Maximum mark: 15]
SPM.1.HL.TZ0.3b
(b)

Using real-world examples, discuss the possible implications of a persistent current account deficit.

[15]

Markscheme

Answers may include:

  • Definition: current account deficit.
  • Explanation: that exchange rates may depreciate, interest rates may rise to attract financial capital to help pay for the deficit. Foreign ownership of domestic assets may increase, debt may increase, credit ratings may be adversely affected, economic growth may be lowered, government policy responses may include use of
    fiscal and monetary policy.
  • Diagram: AD/AS or exchange rate diagram depending on the implications chosen.
  • Synthesis (discuss): the magnitude of the deficit, the proportion of national income it represents, whether borrowing is necessary to finance it, the composition of the deficit (capital or consumer goods), the impact on the currency, etc.
  • Examples: real-world examples of countries which have experienced persistent current account deficits.

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.

 

Syllabus sections