In 2021, Turkey’s central bank reduced the interest rate on four separate occasions. This happened even though inflation climbed from 15% at the beginning of the year to 36% by year end. Turkish commercial banks gained more customers, causing bank deposits to rise by 10%. Later in that year, the Turkish lira dropped to a record low against the US dollar.
(a)[2]
State the meaning of a central bank.
(b)[4]
Explain two different ways a commercial bank could gain more customers.
(c)[6]
Analyse the possible reasons for a decline in a country’s foreign exchange rate.
(d)[8]
Discuss whether or not a reduction in the interest rate will bring down inflation.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Bank owned by the government” …