In 2015, several German commercial banks cut the already exceptionally low interest rates on deposit accounts. The German Government wanted this change to persuade more Germans to purchase shares in German firms. The ability of German firms to buy capital goods would rise if they could issue more shares or borrow more from commercial banks.
(a)[2]
Identify two ways in which a commercial bank differs from a central bank.
(b)[4]
Explain the link between opportunity cost and the purchase of shares.
(c)[6]
Analyse how a drop in the rate of interest could influence a country’s exchange rate.
(d)[8]
Discuss whether greater spending on capital goods will assist in meeting the aims of government policies.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Central bank is owned by the government / commercial bank is owned by private shareholders” …