In June 2015, the Swiss franc increased in value by 30% against the euro. Switzerland’s export markets are also shifting: exports to the USA, UK, India and South Korea are becoming more significant, whereas exports to Germany, Italy and France are losing importance. One likely consequence of an appreciation in the exchange rate is a lower inflation rate.
(a)[2]
Define the term ‘inflation’.
(b)[4]
Explain why a country’s exports to one country may rise, whereas exports to another country may fall.
(c)[6]
Analyse how an appreciation of the exchange rate may reduce the country’s inflation rate.
(d)[8]
Discuss whether a low inflation rate always brings benefits to an economy.
Worked solution & mark scheme
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