Economics · 2016 · November · SL · Question paper

N16/3/ECONO/SP2/ENG/TZ0/XX Economics Standard level Paper 2 © International Baccalaureate Organization 2016 9 pages Instructions to candidates y yDo not open this examination paper until instructed to do so. y yYou are not permitted access to any calculator for this paper. y ySection A: answer one question. y ySection B: answer one question. y yUse fully labelled diagrams and references to the text/data where appropriate. y yThe maximum mark for this examination paper is [40 marks]. 1 hour 30 minutes Thursday 3 November 2016 (afternoon) 8816 – 5113 – 2 – Section A Answer one question from this section. 1. Study the extract below and answer the questions that follow. New Zealand dollar overvalued  The New Zealand fin ance minister said the exc hange rate of the New Zealand dollar (NZD), is “unsustainably high; it is somewhere between 10 % to 15 % overvalued”.  The NZD had been n ear its record high against the US dollar before weakening last week on slower inflation figures and a fall in dairy prices. The NZD has gained about 6 % so far this year .  However, the finance minister said that New Ze aland exporters had developed strength because of the high currency . “New Zealand is actually in reasonably good shape,” he said. “We have had an export sector operating with a strong exchange rate now for five or six years and that has had an impact on efficiency .”  An economist said re cently that the central bank might consider intervening in the currency market to achieve a depreciation in the value of the NZD.  The Reserve Bank (central bank) governor rais ed the official interest rate for the fourth time this year to 3.5 % at a time when other major economies have their rates at record low levels.  He said that, “Encouraging ly, the economy appears to be adjusting to the monetary policy tightening that has taken place since the start of the year . It is important that inflation expectations remain contained. This interest rate increase will help keep future average inflation near the 2 % target and ensure that the economic expansion can be sustained”.  New Zealand’ s economy is expected to grow at an annual pace of 3.7 % over 2014. New