In 2014, Kazakhstan's government devalued the tenge, its currency. One year later, the country still had a current account deficit. So, in 2016 it considered switching to a floating exchange rate, which might help eliminate the deficit. However, it was worried that this could affect the country's inflation rate, which was already high at 17%.
(a)[2]
Define the term devaluation of a currency.
(b)[4]
Explain two advantages of a floating exchange rate system.
(c)[6]
Analyse how fiscal policy measures might lower inflation.
(d)[8]
Discuss whether a fall in a current account deficit on the balance of payments will benefit an economy or not.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A reduction in the value of a fixed exchange rate” …