A-LevelEconomicsThe macroeconomy9708/23 · May/June 2020 · Q320 Marks
The annual rate of inflation in an economy increased sharply and unexpectedly.
- (a)Explain the likely consequences of such an increase for consumers and firms.[8]
- (b)Discuss whether a substantial rise in interest rates is the best way of correcting this increased rate of inflation.[12]
Mark scheme
Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.
- [2] of inflation: An increase in the general price level.
- [4] an explanation of at least two possible consequences of a sharp increase.
- [2] reference to the unexpected element of the rise.
- [4] For an explanation of how a substantial rise in interest rates might reduce the rate of inflation in an economy with due reference to the advantages and disadvantages of this approach.
- [4] For an explanation of at least one other valid policy approach to solving the problem of inflation such as deflationary fiscal policy and/or supply-side policy.
- [4] With 1 mark reserved for concluding whether or not a substantial rise in interest rates is most likely to succeed.
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