In 2021, Turkey’s central bank reduced the interest rate on four separate occasions. This happened even though the country’s inflation rate climbed from 15% at the start of the year to 36% by the end of the year. Turkish commercial banks drew in more customers, which caused bank deposits to rise by 10%. Later that year, the Turkish lira dropped to a record low against the US dollar.
(a)[2]
Define what a central bank is.
(b)[4]
Explain two methods a commercial bank could use to draw in more customers.
(c)[6]
Analyse the possible reasons for a fall in a country’s foreign exchange rate.
(d)[8]
Discuss whether a cut in the interest rate will lower 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” …