Economics 9708 · AS & A Level · 6.4
Explain how this economy’s exchange rate is likely to be affected if its inflation rate is much higher than the inflation rates of its trading partners.
Discuss the advantages and disadvantages that arise from a rise in an economy’s terms of trade and consider whether such a rise is likely to be of overall benefit to an economy.
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Knowledge and understanding of the meaning of an exchange rate (the price of one currency in terms of another) and of a freely floating exchange rate (determined by market forces of demand and supply for the currency and not fixed by the government). (Maximum of 2 KU marks.)” …