CAIE A-Level Economics 10.2.1 Internal and External Value of Money

Practise distinguishing domestic purchasing power from the foreign-exchange value of money and tracing inflation, depreciation, interest rates or QE through both measures.

Exam points

identify the internal value as purchasing power, moving inversely with the domestic price level
identify the external value as the exchange rate and trace currency demand or supply changes
explain how depreciation raises import costs and can reduce both external and internal value

[Maximum number: 1]

An economy imports a large proportion of its raw materials. Its exchange rate depreciates.

What is the impact on the external and internal value of money?

external value

of money

internal value

of money

rises

falls

rises

falls

All question bank results loaded

10.2.1—Internal and external money value question 1