Although the Central Bank of Nigeria had imposed a 9% ceiling for inflation, Nigeria’s inflation rate rose to 9.2% in August 2015. The Governor of the Central Bank said that he would support the use of fiscal policy to bring the inflation rate down and would oppose pressure to devalue the country’s exchange rate.
(a)[2]
Define the term ‘Central Bank’.
(b)[4]
Explain how a fixed exchange rate differs from a floating exchange rate.
(c)[6]
Analyse how fiscal policy could be used to reduce the inflation rate.
(d)[8]
Discuss whether inflation creates more problems than deflation.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Bank owned by the government” …