Benefits of international trade Paper 1- IBDP Economics SL

IBDP Economics SL – The global economy- Benefits of international trade Paper 1- Exam Style Practice Questions

Exam Style Questions..

IBDP Economic SL- All Topics

Question

Explain two factors which influence the value of a currency in a floating exchange rate system.

▶️Answer/Explanation

Answers may include:

Definition: floating exchange system.
Explanation: an explanation of how the value of a floating exchange rate is determined, including demand for exports and imports, speculation, relative interest rates, remittances, portfolio flows, relative inflation rates, foreign direct investment.
Diagram: demand and supply diagram to show determination of an exchange rate.

Question

Using real-world examples, discuss the consequences of a fall in a country’s exchange rate.

▶️Answer/Explanation

Answers may include:

Definition: exchange rate.
Explanation: of consequences such as changes in the price level, economic growth, employment, quantities of imports and exports depending on elasticities, effects on competitiveness and changes in government policy.
Diagram: supply and demand diagram to show reduced demand or increased supply of a currency.
Synthesis (discuss): the magnitude of the reduction in the exchange rate, whether the economy is impacted positively or negatively in terms of growth, unemployment and inflation, effects on different sectors such as tourism and agriculture.
Examples: real-world examples of countries which have experienced the consequences of a reduced exchange rate.

Question

Explain two factors that might cause an appreciation of a currency.

▶️Answer/Explanation

Answers may include:

Terminology: appreciation.
Theory: explanation of any two of the following factors: foreign demand for exports, domestic demand for imports, inward foreign direct investment, inward portfolio investment, remittances, speculation, relative inflation rates, relative interest rates, relative growth rates and central bank intervention.
Diagram: exchange rate diagram showing appreciation of a currency.

Question

Using real-world examples, discuss the consequences for an economy of an appreciation of its currency.

▶️Answer/Explanation

Answers may include:

Terminology: appreciation.
Theory: explanation of consequences such as changes in the inflation rate, economic growth, unemployment, the current account balance (exports and imports) and/or living standards.
Diagram: AD/AS to show potential consequences of an appreciation on the economy.
Synthesis (discuss): the positive or negative impact of the appreciation on inflation, unemployment, economic growth, the current account balance (exports and imports) and living standards, the effect on different sectors of the economy and the importance of the magnitude of the appreciation.
Example(s): real-world examples of countries that have experienced an appreciation of the currency or that have tried to avoid an appreciation.