Gce Model Questions Vol1 2022 Economics Question 9

Practice essay / theory question 9 from the 2022 Gce Model Questions Vol1 Economics examination. This question covers Inflation, Monetary policy, Fiscal policy, Exchange rate .

Gce Model Questions Vol1 2022 Economics Essay / Theory
Topics: Inflation Monetary policy Fiscal policy Exchange rate
Question 9 GCE_MODEL_QUESTIONS_VOL1 • 2022 • ECONOMICS • essay

The economy of Country X has recently experienced a rise in the general price level. The following information is provided: (i) The Consumer Price Index (CPI) increased from 120 to 138 over the past 12 months. (ii) The nominal interest rate set by the central bank is 12 % per annum. (iii) The exchange rate (local currency per US$) moved from 380 to 410 in the same period. (iv) The government’s fiscal deficit widened from 4 % to 6 % of GDP. Answer the questions below.

Question Parts

( a )
Calculate the average inflation rate over the period and discuss whether the inflation is more likely to be demand‑pull or cost‑push in nature.
( b )
Using the Fisher equation, estimate the expected real interest rate and evaluate whether the current nominal rate is adequate for controlling inflation.
( c )
Analyse how the observed exchange‑rate movement could affect inflationary pressures, considering both import‑price and export‑competitiveness channels.
( d )
Discuss two monetary‑policy measures and two fiscal‑policy measures that could be used to bring inflation back to the target range, and evaluate the likely short‑run trade‑offs of each measure.

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About This Question

This is Gce Model Questions Vol1 2022 Economics Question 9. It is one of the essay questions from the 2022 Gce Model Questions Vol1 Economics examination.

The question covers Inflation, Monetary policy, Fiscal policy, Exchange rate .

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