The consequences of a currency’s depreciation depend on the price elasticity of demand for exports and imports. Across the world, trade barriers such as tariffs have fallen. In addition, the exchange of goods and services between countries has grown, and the movement of people has increased to a smaller degree. In some countries, net emigration occurs, with more people leaving than arriving.
(a)[2]
Define what depreciation of a currency means.
(b)[4]
Explain two reasons why demand for a country’s exports may be price-inelastic.
(c)[6]
Analyse how a cut in its import tariffs could raise a country’s output.
(d)[8]
Discuss whether net emigration will or will not reduce poverty in a country.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A decrease in the value, price or exchange rate of a currency” …