In June 2015, the Swiss franc appreciated by 30% against the euro. Switzerland's export markets are also shifting. Sales to the USA, UK, India and South Korea are becoming more important, whereas sales to Germany, Italy and France are falling. One possible effect of an appreciation in the exchange rate is a lower inflation rate.
(a)[2]
Define ‘inflation’ in your own words.
(b)[4]
Explain why exports from one country to another may rise while exports to a different country fall.
(c)[6]
Analyse how an appreciation of the exchange rate may lower the country’s inflation rate.
(d)[8]
Discuss whether a low inflation rate always helps an economy.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “An increase in the general price level/average prices” …