The Canadian economy in 2014 was generally doing well. Money was largely retaining its value and unemployment was falling. The country did, however, have rising household debt and a deficit on the current account of its balance of payments. The Canadian Government in 2014 was seeking to increase exports whilst recognising that such an increase may have an impact on the exchange rate.

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [1] medium of exchange / means of payment
2. [1] store of value
3. [1] unit of account/measure of value
4. [1] standard of deferred payment.
5. [1] The rate of interest may fall
6. [1] making it cheaper to borrow
7. [1] Incomes may fall / prices may rise / inflation
8. [1] so people may borrow to purchase basic necessities
9. [1] People may become more optimistic about the future
10. [1] more confident that they will repay loans
11. [1] The price of housing may fall
12. [1] encouraging people to take out mortgages
13. [1] Increase in family size
14. [1] creates a greater need to borrow to support more children
15. [1] The cost of health care/education may increase
16. [1] requiring people to pay more for the services
17. [1] International trade usually covers greater distances
18. [1] which increases the cost of transport
19. [1] may take longer for delivery
20. [1] International trade means a bigger market than the internal market
21. [1] and more competitive
22. [1] enabling firms to gain economies of scale
23. [1] Internal trade involves using the same currency
24. [1] international trade may involve two or more currencies
25. [1] increasing transaction costs
26. [1] International trade means a wider range of goods & services
27. [1] this gives consumers greater choice
28. [1] Trade restrictions may be imposed on products traded internationally
29. [1] raising costs of production
30. [1] Tastes and cultures may differ
31. [1] requiring differences in products offered
32. [1] Regulations may differ
33. [1] requiring adjustments in products
34. [1] Languages may differ
35. [1] e.g. incurring costs of translation
36. [1] The exchange rate is the price of a currency
37. [1] An increase in exports may increase export revenue
38. [1] this will increase demand for the currency
39. [1] higher demand pushes up the price of the currency
40. [1] raising the value of a floating exchange rate
41. [1] which is determined by market forces
42. [1] Exports may increase but export revenue may not
43. [1] more exports may be bought for a lower price
44. [1] and so demand for the currency will not rise
45. [1] An increase in exports may be offset by an increase in imports / lower interest rate
46. [1] or government intervention by selling domestic currency
47. [1] so demand and supply of the currency will increase
48. [1] which may leave the exchange rate unchanged