Some governments implement policies to control inflation.

Mark scheme

Marking points from the official mark scheme. The mark or mark type is shown in brackets.

1. Question 13(a)
2. Award 1 mark for identification of a cause of inflation (e.g., demand-pull, cost-push, imported inflation) (K1)
3. Award 1 mark for explanation of the cause (App1)
4. Repeat for a second cause (K1, App1)
5. Example 1: Demand-pull inflation (K1) / caused by an increase in aggregate demand in the economy that outstrips aggregate supply, leading to a rise in the general price level (App1).
6. Example 2: Cost-push inflation (K1) / caused by an increase in the costs of production for firms, such as rising wages or raw material prices, which are then passed on to consumers in higher prices (App1).
7. Question 13(b)
8. Award 1 mark for identifying a monetary policy tool (e.g., increasing interest rates, reducing money supply via quantitative tightening) (K1)
9. Award up to 3 marks for analysis of how it controls inflation (App1, An1, An1)
10. Example: Increasing interest rates (K1) / makes borrowing more expensive and saving more attractive for consumers and firms (App1). This reduces consumer spending and business investment (An1), leading to a fall in aggregate demand, which then reduces demand-pull inflationary pressure in the economy (An1).
11. Maximum 6 marks for analysis of effectiveness (benefits). Up to 2 additional marks for effective evaluation (limitations/drawbacks/contextual factors) (Eval1, Eval1).
12. Evaluation points could include: time lags, potential for recession/unemployment, impact on exchange rates/exports, global factors influencing inflation beyond domestic control, effectiveness depending on consumer/business confidence, liquidity trap. A balanced evaluation will consider both strengths and weaknesses and provide a reasoned conclusion.