Read the source material with care before you answer Question 1.
Source material: Bank mergers
During 2019, a merger involving three Nigerian commercial banks created Nigeria’s largest commercial bank. Also in 2019, two US commercial banks combined to form the US’s 6th largest commercial bank. In the US, the three biggest banks held 32% of the market. In both the US and Nigeria, the major banks responded by opening additional branches, running advertising campaigns and upgrading online banking.
Bank mergers can mean that some bank employees lose their jobs. Unemployment did rise in Nigeria in 2019. This is likely to have influenced the government’s budget because both government tax revenue and government spending would have changed. Most commercial bank workers are well educated. The number of years of education people receive can influence a country’s birth rate. Fig. 1.1 shows average years of schooling and the birth rate in selected countries in 2019.
In both Nigeria and the US, some households spend more than they earn, so they borrow from commercial banks. In Nigeria, some children in low-income households do not get enough to eat because food is expensive. A government subsidy for farmers could be used to help low-income Nigerian households. The subsidy could also help to reduce the deficit on the current account of its balance of payments. Whether this happens will depend on Nigeria’s inflation rate compared with other countries and on incomes at home and overseas.
In the US, almost 35% of children are overweight. One cause of this is eating and drinking items with a high sugar content. The US government could set a minimum price for such products, including chocolate. A minimum price could move the market closer to the point where social benefit equals social cost. However, some consumers think it would be unfair and some firms think it would cut profits. A minimum price may also create a cost for the government, and how successful it is would depend on how high the minimum price is set.
(a)[1]
Calculate how many US dollars $6400$ Nigerian naira would have bought in $2019$.
(b)[2]
Identify two ways a bank could raise demand for its services.
(c)[2]
State why a merger between two commercial banks is a horizontal merger.
(d)[4]
Explain two reasons a large US commercial bank might set high prices for its services.
(e)[4]
Analyse how a rise in unemployment might affect the Nigerian government’s budget.
(f)[5]
Analyse the relationship between countries’ average years of schooling and birth rates.
(g)[6]
Discuss whether or not a subsidy, given to farmers by the Nigerian government, would reduce the deficit on the current account of its balance of payments.
(h)[6]
Discuss whether or not the US government should impose a minimum price on chocolate.
Worked solution & mark scheme
This 30-mark question has a full step-by-step worked solution and mark scheme. One marking point: “16” …