Economics 9708 · AS & A Level · 6.3

6.3 — practice question

(a)[8]

Explain how a high rate of inflation and a rise in an economy’s exchange rate can each lead to a deficit on the current account of the balance of payments.

(b)[12]

Discuss whether a high rate of inflation or a deficit on the current account of the balance of payments is the more serious problem for an economy.

Worked solution & mark scheme

This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Inflation causing a deficit: recognising how a high rate of inflation affects the relative price of exports and the price of imports” …

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