At the beginning of 2016, the central bank of the Republic of Turkey reduced interest rates on five occasions. This happened even though inflation stood at 7.6%. The economy combined a low saving rate with weak investment. To boost economic growth, the Turkish government announced a reform package that included subsidies for research and investment.
(a)[2]
Identify two functions performed by a central bank.
(b)[4]
Explain how the Consumer Prices Index (CPI) is worked out.
(c)[6]
Analyse the effects of a cut in interest rates on saving and investment.
(d)[8]
Discuss the effects of supply-side policy measures on government expenditure and government revenue.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Regulate the money supply” …