Practise 4.5.3 Consequences of exchange rate changes in IB Economics SL by reviewing the concepts and applying them to marked questions.
Study the extract below and answer the questions that follow.
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Using information from the text/data and your knowledge of economics, discuss possible consequences of the appreciation of the British pound.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Marking guidance:
Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Level Marks
0 The work does not reach a standard described by the descriptors below. ..... 0
1 Few relevant concepts are recognized. ..... 1-2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. ..... 3-5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. ..... 6-8
There is clear knowledge/understanding.
There is effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term
Discuss requires candidates to offer a considered and balanced review that includes a range
of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly
and supported by appropriate evidence.
Responses may include:
- a strong British pound will lower the cost of imported raw materials, semi-finished goods, and finished goods, reducing inflationary pressure
- in the short run, export prices will rise and import prices will fall, leading to reduced employment in both export industries, as demand for exports falls, and domestic industries, as people buy more imports
- impact on tourist sector in the UK (paragraph (2))
- impact on British tourists going overseas (paragraph (2)
- in markets where demand is inelastic, export revenue may not fall (part (c)) (paragraph (3)
- British firms are losing out to foreign competitors (paragraph 3) as goods and services are relatively more expensive
- a fall in net exports would lead to lower AD and so a fall in growth rates
- impact on British firms' profits
- a high exchange rate could lead to a fall in net exports and have an impact on the current account
- the impact of cheaper fuel on household budgets (paragraph (6).
Any reasonable discussion.