In 2014, Ghana’s currency, the cedi, altered in value by 40% against the US dollar. As the cedi depreciated, inflation increased. The economy’s demand conditions were shifting, while government spending rose faster than taxation. A number of economists warned that higher taxes could lead to deflation.
(a)[2]
What does the term ‘depreciation’ of a currency mean?
(b)[4]
Explain how a currency depreciation can lead to an increase in a country's inflation rate.
(c)[6]
Analyse why an economy may struggle to keep both low unemployment and low inflation simultaneously.
(d)[8]
Discuss whether a rise in taxes will cause deflation.
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 value” …