Cambridge Assessmentnternational EducationCambridge International AS A LevelECONOMICS9708/22Paper 2 AS Level Data Response and EssaysFebruary/March 20232 hoursYou must answer on the enclosed answer bookletYou will need:Answer booklet(enclosed)INSTRUCTIONSAnswer three questions in total:Section A:answer Question 1.Section B:answer one question.Section C:answer one question.Follow the instructions on the front cover of the answer booklet.If you need additional answer paper,ask the invigilator for a continuation booklet.You may use a calculator.You may answer with reference to any economy you have studied where relevant to the question.INFORMATION.The total mark for this paper is 60.The number of marks for each question or part question is shown in brackets[]This document has 4 pagesDC(CE/CT)315935/2©UCLES2023[Turn over2Section AAnswer this question.1Inflation in the United States(US)Prices are rising much faster than expected across the world's economies,including the US.Asthe US economy has grown,the prices of goods and services have substantially increased.TheUS economy is forecast to grow by 7.4%in 2021,with consumer spending rising by over 10%peryear,but this boom has been accompanied by a rapid increase in the inflation rate.The US inflation rate was 1.7%in February 2021.By the end of that year it had been expected tobe 1.9%,but by June 2021 the rate was already 5.4%compared with 12 months before.This isthe highest rate of inflation in the US since August 2008.6.05.55.04.54.0-Annual rate3.5of inflation3.0(%)2.52.01.51.00.50.0JulAugSepOctNovDecJanFebMarAprMayJun202020202020202020202020202120212021202120212021yearsSource:tradingeconomics.com,August 2021Fig.1.1:Percentage change in the Consumer Price Index(CPI)per year in the USJuly 2020-June 2021Rising inflation in the US has two main causes.The first cause is a substantial increase in thedemand for consumer spending on goods and services.The economy has also been boostedby the US government's economic stimulus package in response to the downturn caused by theCOVID-19 pandemic.In 2020 and 2021,the US government spent an additional USS6 trillion,leading to a budget deficit of 12.7%of gross domestic product(GDP)in June 2021,one of thelargest budget deficits in the world.The second cause of increasing inflation in the US is significant disruption to the supply of manygoods as a result of the pandemic,a problem worsened by disruption to global shipping created bythe temporary blocking of the Suez Canal.There are now long-term supply shortages for a widerange of products from semiconductors to timber.The cost of shipping goods has also becomemore expensive;for example,the cost of shipping goods from China to the US has tripled over12 months.©UCLES20239708/22/FM23A sustained increase in inflation could have a number of consequences,both negative andpositive.Rising inflation could lead to a tightening of monetary policy,such as through an increasein interest rates.This is important in the US given that the government is targeting an annualinflation rate of 2%.Some economists believe that interest rates in the US may need to rise from0.25%to as high as 4.50%to 'cool'the economy and reduce the rate of inflation and that this islikely to happen sooner rather than later.Source:Adapted from 'Boom and doom?a briefing on inflation,The Economist 10 July 2021.(a)Using Fig.1.1,compare the US inflation rate between July and December 2020 with thatbetween January and June 2021.(b)Using the information provided,explain what is meant by the US government's economicstimulus package'.(c)Consider the extent to which an increase in interest rates could reduce the rate of inflation inthe US.[4(d)With the help of an AD/AS diagram,assess whether the rising inflation rate in the US hasbeen caused by changes to the demand side or changes to the supply side of the economy.(e)Assess the possible consequences of a rising rate of inflation for a country such as the US.©UCLES20239708/22/F/M23