In 2014, the government of Kazakhstan devalued its currency, the tenge. A year later the country still had a current account deficit. Therefore, in 2016 it considered adopting a floating exchange rate which might help to remove the deficit. However, it had concerns that this might affect the country's inflation rate which was already high at 17%.

Mark scheme

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

1. [1] A fall in the value (1) of a (fixed) exchange rate (1).
2. [1] Fall in value of currency (1) relative to another (1).
3. [1] Fall/decrease in exchange rate (1).
4. [0] Fall/decrease in currency (0).
5. [1] It should automatically eliminate current account imbalances
6. [1] by floating down when there is a deficit
7. [1] No currency reserves are needed
8. [1] as the government will not intervene to influence the value of the currency
9. [1] No government intervention needed
10. [1] as the exchange rate will be at the market price / determined by supply and demand
11. [1] The exchange rate is not a policy target
12. [1] policy measures do not have to be used to influence its value
13. [1] A rise in taxes
14. [1] causes a fall in disposable income/rise in costs
15. [1] fall in government spending
16. [1] will reduce total (aggregate) demand
17. [1] reduce demand-pull inflation
18. [1] Government spending on education/training/subsidies
19. [1] lower taxes
20. [1] could reduce costs of production
21. [1] will increase total (aggregate) supply
22. [1] lower cost-push inflation
23. [1] Lower taxes on imports would reduce cost-push inflation
24. [1] May mean that demand for imports has fallen
25. [1] and/or demand for exports has risen
26. [1] higher total (aggregate) demand
27. [1] may increase GDP/create economic growth
28. [1] reduce unemployment
29. [1] Will reduce debt
30. [1] not have to borrow as much to finance it
31. [1] May cause appreciation of exchange rate
32. [1] leading to lower inflation
33. [1] If the deficit is reduced by buying fewer imports of raw materials
34. [1] and capital goods
35. [1] may reduce GDP
36. [1] lower exports in the longer run
37. [1] If fewer imports are being purchased because of a recession
38. [1] GDP will be falling
39. [1] If fewer imports are being purchased because trade restrictions are introduced
40. [1] there may be retaliation
41. [1] with tariffs/quotas being imposed one exports
42. [1] Higher total (aggregate) demand might lead to (demand-pull) inflation
43. [1] Exchange rate may appreciate
44. [1] can reduce total demand/worsen the deficit in the long run