Explain how the rate of deflation is measured and the impact of a period of deflation on an economy.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [2] For knowledge and understanding of what is meant by deflation i.e. a fall in the general price level (1 mark) and how it is measured i.e. a fall in the Consumer Price Index (CPI). (1 mark) Allow reference to other methods of measuring changes in the price level such as the GDP implicit deflator. (KU: Up to 2 marks)
2. [3] For application explaining the impact of deflation on an economy. For each impact explained (Up to 3 marks)
3. [6] So a minimum of two impacts explained is necessary for all the available marks here. Please note however that some answers might contain a number of impacts within one developed explanation.
4. [6] There is no maximum in terms of the number of impacts explained, but it is essential that there is explanation of each rather than an unexplained list (1 mark maximum). (APP: up to 6 marks)
5. [4] For analysis of how expansionary monetary policy is designed to solve the problem of deflation with due reference to any weaknesses or disadvantages of this approach. (Up to 4 marks)
6. [4] For analysis of how expansionary fiscal policy is designed to solve the problem of deflation with due reference to any weaknesses or disadvantages of this approach. (Up to 4 marks)
7. [4] For evaluative comment that compares the relative merits of each approach (3 marks) to arrive at a conclusion on which approach is most likely to be effective. (1 mark) (EV: up to 4 marks)