Economics · May / June 2026 · Paper 22 · Question 3

0455

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The question as text

In 2022, the President of Zimbabwe ordered the country’s commercial banks to stop lending. He was concerned that people were borrowing money to buy foreign currency. At this time, Zimbabwe faced several economic problems. The inflation rate was very high at 105%. In 2023, it rose to 850% despite the government’s aim of a fall in the inflation rate.

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3(a)[2]
State what is meant by a fall in the inflation rate. The rate of increase in the (general) price level/prices (1)
has fallen (1)
3(b)[4]
Explain two reasons why households may save their money in a commercial bank. Logical explanation which might include:
A commercial bank pays interest (1)
grow an investment/increase income (1)
A commercial bank may be seen as a safe place to keep savings (1)
reduce risk of theft/loss (1)
To build up funds (1)
to pay later for education/healthcare/a home/ guard against shock/when confidence is low (1)
A commercial bank advertises/markets (1)
raise awareness of benefits (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. If more than two reasons are given, consider the first three.
3(c)[6]
Analyse how a fall in a country's foreign exchange rate can cause inflation. Coherent analysis which might include:
Reduce export prices (1)
may increase demand for exports / net exports/export revenue increases (1)
increase total (aggregate) demand (1)
cause demand- pull inflation (1)
if total supply cannot increase/remains unchanged (1).
Raise import prices (1)
increase demand for domestic goods/ decrease demand for imports (1)
increase cost of imported raw materials (1)
increase price of imported capital goods (1)
reduce pressure on domestic firms to keep costs low (1)
cause cost-push inflation (1). 6 Note: Listing any reasons Max 3 marks. Do not credit reference to ‘inflation’. It must be ‘demand pull inflation’ and/or ‘cost-push inflation’ to be credited.
3(d)[8]
Discuss whether or not a reduction in bank lending will harm an economy. In assessing each answer, use the table opposite. Coherent discussion which might include: Why it might harm an economy:
firms that need to borrow to cover costs may go out of business
firms that want to expand may not be able to gain funds
reduce total demand
output and employment may fall
households may not be able to borrow to spend on education and healthcare
productivity may fall
governments cannot borrow to fund deficit/spending Why it might not harm an economy:
may reduce demand for imports
may improve the current account balance
may reduce demand-pull inflation
may prevent firms and households getting into debt. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Guidance Level Description A mark of zero should be awarded for no creditable content.

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