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Date November 2021 Marks available 15 Reference code 21N.1.HL.TZ0.3
Level Higher level Paper Paper 1 Time zone Time zone 0
Command term Discuss Question number 3 Adapted from N/A

Question

Explain how rising commodity prices and wages might lead to cost-push inflation.

[10]
a.

Discuss the possible consequences of deflation for an economy.

[15]
b.

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

NB A maximum of [6] should be awarded if a candidate has only explained the effect of rising commodity prices OR rising wages.

a.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

Discussion may include: consideration of the extent to which the consequences of deflation depend on its causes; consideration of the effect of deflation on different stakeholders.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

b.

Examiners report

Most candidates were able to draw an AD/AS model and explain that cost-push inflation is caused by an increase in the cost of production but their answers would be improved if they could further support their explanations by an appropriate historical example.

a.

The great majority of candidates understood the concept of deflation but too many candidates focused their answers on the causes of deflation instead of on the consequences of deflation. Also, candidates often spent a lot of time discussing the consequences of expansionary fiscal and monetary policies. Their answers could be significantly improved if they had focused on discussing negative consequences that can be directly attributed to the falling average price level.

b.

Syllabus sections

First exams 2022 » Unit 3: Macroeconomics » 3.3 Macroeconomic objectives » 3.3.3 Low and stable rate of inflation
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