Marking an economics analysis
Follow a currency depreciation through import prices and household purchasing power.
The question
Analyse how a depreciation of the domestic currency could affect households that buy imported goods. (4 marks)
The marking guide
- Award 1 mark for recognising that a unit of domestic currency buys less foreign currency.
- Award 1 mark for linking this to higher domestic prices of imports, assuming foreign prices are unchanged.
- Award 1 mark for explaining reduced household purchasing power or a change in consumption.
- Award 1 mark for a relevant qualification, such as incomplete exchange-rate pass-through, substitutes or a delay in price changes.
The sample response
A depreciation means one unit of our currency buys less foreign currency. Imported goods therefore cost more in domestic currency if their foreign prices stay the same. Households can afford fewer of these goods with the same income and may switch to locally made substitutes.
Axtant’s mark and feedback
You explain that a unit of domestic currency buys less foreign currency, so imported goods cost more domestically if foreign prices stay the same. You also explain that households can afford fewer imports and may switch to local substitutes. This meets all four criteria.
Why the guide matters here
The response carries the exchange-rate change through to a household choice. Locally made substitutes provide the relevant qualification specified in this guide.
A useful teaching follow-up
Use the guide’s required links when reviewing an analysis. A longer answer is not automatically a more complete one.
Try it with your material
This practice question, guide and sample response were written for Axtant. The mark and feedback shown are Axtant’s own for that response.