Explain, with the aid of a diagram, one demand factor and one supply factor that can cause the depreciation of a foreign exchange rate.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [2] Up to 2 marks for Knowledge and Understanding
2. [1] For correct diagram: Vertical axis correctly labelled: P/Price, horizontal axis correctly labelled: Q/Quantity, and Demand and Supply curves correctly drawn and labelled
3. [1] Shift of the demand and/or supply curve correctly drawn and labelled
4. [6] Up to 6 marks for Application
5. [3] Application of two factors to the depreciation of a foreign exchange rate: Explanation of one demand factor
6. [3] Application of two factors to the depreciation of a foreign exchange rate: Explanation of one supply factor
7. [8] Up to 8 marks for Analysis
8. [4] Analysis of the effect of an appreciation of a country's foreign exchange rate on the level of inflation in an economy
9. [4] Analysis of the effect of an appreciation of a country's foreign exchange rate on the level of employment in an economy
10. [4] Up to 4 marks for Evaluation
11. For exercising some judgement on whether an appreciation of a country's foreign exchange rate is likely to cause both a rise in inflation and a decrease in employment in its economy
12. [1] Reserve 1 mark for a conclusion