Distinguish between the internal value of money and the external value of money and consider whether there is a link between these two values.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. Answers should explain that the internal value of money will be determined by inflation and subsequent purchasing power and the external value will be determined by the foreign exchange value of the domestic currency. Links between the two values should be discussed. For example, an increase in inflation might lead to a fall in the exchange rate, therefore a fall in the internal value might be associated with a fall in the external value.
2. Policies which attempt to control the internal value of money will include all policies used to control inflation. These might include monetarist, Keynesian demand pull and Keynesian cost push. Different policies would be expected to have a different impact on the external value of money. The response should use analysis to establish the links between the policies and their impact and make some attempt to discuss whether such policies automatically make it difficult to control the external value of money.