IB Economics SL 4.5.4 Fixed Exchange Rates Questions

Define devaluation indicated in bold in the text (paragraph 7).

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

Vague definition.

The idea that a currency is worth less or the idea that the exchange rate falls

2

Accurate definition.

An explanation that it is a decrease in the value (price) of one currency (in terms of another currency) plus one of the following:

- in a fixed exchange rate system

- as a result of government or central bank intervention.

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

There is a correct diagram or an accurate written response.

1-2

An exchange rate diagram showing a shift in the demand curve to the right and an increase in the value of the naira or an explanation that the central bank (uses its reserves to) buy the naira thus bringing about an appreciation of its currency to restore its minimum value.

2

There is a correct diagram and an accurate written response.

3-4

An exchange rate diagram showing a shift in the demand curve to the right and an increase in the value of the naira and an explanation that the central bank (uses its reserves to) buy the naira thus bringing about an appreciation of its currency to restore its minimum value.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For an exchange rate diagram the vertical axis may be exchange rate, price of naira in dollars, or US dollars per naira, or USD/naira, or naira/USD. The horizontal axis should be quantity or quantity of naira or quantity of naira traded. A title is not necessary.