Question:

5 In 2020, Paraguay’s Consumer Prices Index rose by 3% and its foreign exchange rate fluctuated.
Each year Paraguay experiences net emigration. People leave a country for a number of reasons.
These include a low rate of economic growth and high level of market failure. The Paraguayan
government does intervene in the economy in an attempt to reduce market failure.
(a) Define Consumer Prices Index. [2]
(b) Explain two ways a government could intervene to reduce market failure. [4]
(c) Analyse how an increase in a country’s foreign exchange rate could reduce inflation. [6]
(d) Discuss whether or not an increase in a country’s economic growth rate will reduce emigration
from the country. [8]

Sample Answers: