Exchange Rates: one question to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
Country X’s living standards were compared with country Y’s living standards using real GNP per head converted into US dollars. Country X was ranked above country Y. Which factor might have caused this ranking to be incorrect?
Answer: A.
What this practice covers
These questions are drawn from past CIE 9708 papers and filtered to exchange rates. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on exchange rates, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Saying an improvement in the terms of trade is always good, without the elasticity condition.
- Confusing the terms of trade with the balance of trade. The first is a price ratio; the second is a value difference.
- Thinking a depreciation improves the terms of trade. It worsens them while improving competitiveness.
- Concluding a country is more competitive because its terms of trade improved.
- Applying PPP to short run movements.
- Forgetting that a fixed rate subordinates monetary policy.
- Treating a managed float as identical to a clean float.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Exchange Rates revision notes.