| Date | May specimen first teaching 2021 | Marks available | 10 | Reference code | SPM.1.SL.TZ0.2 |
| Level | Standard level | Paper | Paper 1 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 2 | Adapted from | N/A |
Question
Explain two possible causes of deflation.
Using real-world examples, evaluate the effectiveness of monetary policy to achieve low inflation.
Markscheme
Answers may include:
- Definition: deflation.
- Explanation: any determinant of AD that could shift it to the left, eg falling consumer or business confidence, falling consumption, falling investment, falling government spending, or any determinant that shifts AS to the right, eg falling costs of raw materials or labour, increased productivity, rising exchange rate.
- Diagram: AD/AS diagram to show falling AD or increasing AS in such a way that the average price level falls.
Answers may include:
- Definition: inflation, monetary policy.
- Explanation: that it is incremental, easily changed, flexible, fast to implement, does not burden the government’s budget. That there are limitations: it is less effective when business/consumer confidence is low; effectiveness may depend on the type of inflation.
- Diagram: AD/AS diagram to illustrate contractionary monetary policy.
- Synthesis (evaluate): strengths and limitations of monetary policy in achieving low inflation. Fiscal policy might be considered as an alternative, but the emphasis of the response should be on monetary policy.
- Examples: real-world examples of where governments have attempted to lower inflation using monetary policy.
N.B. It should be noted that definitions, theory and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.
Examiners report
Syllabus sections
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18M.3.HL.TZ0.2b.i:
Using the graph, determine short-run values for the unemployment rate in 2016 and the inflation rate in 2018. Enter your answers in Table 2 below.
Table 2
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22M.2.SL.TZ0.1b.ii:
Using your answer to part (b)(i), identify the year disinflation set in.
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19N.3.HL.TZ0.2b:
Explain two reasons why low and stable inflation is desirable.
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19N.3.HL.TZ0.2d:
Using the data in Table 1 to support your answer, identify two reasons why many economists would consider Country A’s economy to be performing poorly in 2012.
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19N.3.HL.TZ0.2a.i:
Calculate the inflation rate for 2014 and for 2015. Enter your results in Table 1.
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18N.3.HL.TZ0.3c:
Calculate the rate of consumer price inflation in 2016.
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21M.1.HL.TZ2.3b:
Discuss the view that deflation is more harmful than inflation.
- 20N.3.HL.TZ0.2b: Explain two reasons why the calculation of the inflation rate may not be accurate.
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20N.3.HL.TZ0.2a.ii:
The cost of the typical basket was $50 in 2017. Calculate the consumer price index (CPI) for 2017.
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20N.2.SL.TZ0.4a.ii:
Define the term inflation indicated in bold in the text (paragraph [2]).
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21M.1.HL.TZ2.3a:
Explain the causes of cost-push inflation.
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21N.2.SL.TZ0.4b:
Using an AD/AS diagram, explain how “lower prices for food and raw materials” might put downward pressure on inflation (paragraph [1]).
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22M.2.SL.TZ0.2d:
Using an AD/AS diagram, explain how the increase in the price of fuel might have contributed to inflation (Text D, paragraph [5]).
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22M.2.SL.TZ0.1b.i:
Using information from Table 1, calculate North Macedonia’s annual rates of inflation between 2016 and 2019.
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20N.3.HL.TZ0.2a.iii:
The consumer price index for 2014 was 101.23. Calculate the rate of inflation between 2014 and 2015 (the base year).
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18N.3.HL.TZ0.3d:
Using the GDP deflator, calculate the percentage change in real GDP between 2014 and 2015.
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21N.3.HL.TZ0.2g:
Using Table 3, calculate the rate of inflation in 2017 and in 2018.
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20N.3.HL.TZ0.2a.i:
Calculate the cost of the typical basket in 2016.
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20N.1.HL.TZ0.3b:
Discuss the view that the redistribution of income is the most important impact that inflation has on an economy.
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21M.1.HL.TZ1.3a:
Explain two causes of demand-pull inflation.
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21M.3.HL.TZ0.2e:
Identify a period in which Country Y experienced disinflation.
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20N.3.HL.TZ0.2d.i:
In 2019, nominal GDP was $102 874.55 million. Using data from Table 2, identify whether Country A experienced inflation or deflation or disinflation in 2019.
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21N.1.HL.TZ0.3a:
Explain how rising commodity prices and wages might lead to cost-push inflation.
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21N.1.HL.TZ0.3b:
Discuss the possible consequences of deflation for an economy.
