Jordan uses a fixed foreign exchange rate against the US dollar. As a result, Jordan’s monetary policy is closely tied to the monetary policy of the US. Because confidence in the world economy was low in 2019, central banks across the world, including Jordan and the US, lowered interest rates to encourage growth. However, this could have run against the macroeconomic objective of low inflation.
(a)[2]
Define the term inflation.
(b)[4]
Explain how low confidence affects both spending and borrowing.
(c)[6]
Analyse the ways in which a cut in interest rates could produce conflicts between macroeconomic aims.
(d)[8]
Discuss whether a country would gain from using a fixed foreign exchange rate system.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A sustained rise in the general price level over time” …