Economics 9708 · AS & A Level · 6.4
With the aid of a diagram, Explain what is meant by an appreciation of a floating exchange rate and consider whether a country can benefit only from an appreciation of its currency.
Assess whether supply-side policies are the most effective method of correcting a deficit on the current account of the balance of payments of an economy.
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “AO1 Knowledge and understanding (max 3): Definition: an increase in an exchange rate in a floating exchange rate system, that is, the exchange rate rises in response to the supply and demand for the currency (1). A diagram illustrating an appreciation of a currency: the axes must be labelled correctly (the vertical axis should be labelled either using two currencies or as exchange rate) (1), and the rise in a currency's value should be shown by a rightward shift of the demand curve and/or a leftward shift of the supply curve, with the new equilibrium price shown together with an explanation of a possible cause of either shift (1).” …