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Question 22N.1.SL.TZ0.b

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Date November 2022 Marks available [Maximum mark: 15] Reference code 22N.1.SL.TZ0.b
Level SL Paper 1 Time zone TZ0
Command term Discuss Question number b Adapted from N/A
b.
[Maximum mark: 15]
22N.1.SL.TZ0.b

Using real-world examples, discuss the consequences for an economy of an appreciation of its currency.

[15]

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2022 forward, part B.

Answers may include:

  • Terminology: appreciation.
  • Theory: explanation of consequences such as changes in the inflation rate, economic growth, unemployment, the current account balance (exports and imports) and/or living standards.
  • Diagram: AD/AS to show potential consequences of an appreciation on the economy.
  • Synthesis (discuss): the positive or negative impact of the appreciation on inflation, unemployment, economic growth, the current account balance (exports and imports) and living standards, the effect on different sectors of the economy and the importance of the magnitude of the appreciation.
  • Example(s): real-world examples of countries that have experienced an appreciation of the currency or that have tried to avoid an appreciation.

N.B. It should be noted that theory and diagrams 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.

Examiners report

This question produced some good responses from candidates. The strongest answers explained how an appreciation in a country's currency can lead to lower import prices, which benefit businesses that import inputs and finished goods, leading to lower prices for consumers. This in turn can lead to lower inflation. Good responses also explained how an appreciation in a country's currency increases export prices and makes a country's goods less competitive in international markets. To reach the highest marks students needed to evaluate the consequences of an appreciation in its currency by, for example, considering the scale of the appreciation and how long the currency is at an elevated level. Candidates also needed to support their responses with real-world examples.

Syllabus sections