Observation

This question was also popular among the candidates. Candidates were expected to define deflation, outline three positive effects of deflation and explain the ways by which inflation affects any three functions of money. Most of the candidates that attempted this question were able to define inflation but were unable to expatiate their points in the (b) part of the question, only few Candidates were able to relate inflation as it affects the functions of money, hence they were unable to score high marks.
The candidates were expected to answer thus:

(a)        Deflation is a period of persistent fall in the general level of prices of goods
and services.                                                                                                                                                                                                                                                       

(b)       (i)         Money lenders/creditors gain because money paid back has a higher value.
(ii)        Improvement in balance of payments due to increase in exports.
(iii)       Fixed income earners gain because money buys more baskets of goods.
(iv)       Increase in the value of money as a result of falling prices.

1. Savings are encouraged because cost of living is low.
2. Standard of living will increase as a result of reduction in the cost of living.

(c)        (i)         Medium of exchange – during inflation people are likely to lose
confidence in money as a means of payment for goods and services
because of a fall in its value.

(a) Store of value – the function of money as a store of wealth is undermined during periods of inflation because the money saved loses value.

(b)Standard of deferred payment – during inflation money does not serve asan adequate standard of deferred payment.
(c)Unit of account – during inflation, money is not a reliable unit of account.