CAIE A-Level Economics 6.4.5 Exchange rates in AD/AS

For analysis explaining why 'the huge oil price slump and the fall in the value of the rouble' will bring opportunities to the Russian economy

(Up to 3 marks)

Marking guidance:

Maximum of 2 marks if only the oil price slump or the fall in the value of the rouble is considered.

For analysis explaining why 'the huge oil price slump and the fall in the value of the rouble' will bring threats to the Russian economy

(Up to 3 marks)

Maximum of 2 marks if only the oil price slump or the fall in the value of the rouble is considered.

Maximum of 5 marks in total for analysis

Leading to a well-reasoned conclusion whether or not there will be more opportunities than threats to the Russian economy

(1 mark)

6

The fall in the price of oil is likely to reduce the value of Russia's exports and have a negative effect on the current account of the balance of payments, but this is only the case if the PeD is inelastic. A possible opportunity is that costs of production will fall for domestic firms that use oil and this may impact the Russian economy by making its exports more price competitive,

The impact of the fall in the value of the rouble could be positive or negative depending upon the PED of Russia's imports and exports. There is a threat however that will result from the possible imported inflation and this may impact the Russian economy by lowering living standards.