In 2014, Kazakhstan's government cut the value of its currency, the tenge. One year on, the country still had a current account deficit. As a result, in 2016 it looked at adopting a floating exchange rate, which could help eliminate the deficit. However, it was worried that this could influence the country’s inflation rate, which was already high at 17%.
(a)[2]
What does devaluation mean?
(b)[4]
Explain two benefits of a floating exchange rate.
(c)[6]
Analyse how fiscal policy actions could be used to cut inflation.
(d)[8]
Discuss whether reducing a current account deficit on the balance of payments would benefit an economy.
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 of a fixed exchange rate” …