In 2015, some German commercial banks cut the interest rates on deposit accounts, which were already extremely low. The German Government expected that this change would persuade more Germans to purchase shares in German firms. If German firms were able to sell more shares or borrow more from commercial banks, their capacity to buy capital goods would rise.
(a)[2]
Identify two differences between a commercial bank and a central bank.
(b)[4]
Explain the link between opportunity cost and the purchase of shares.
(c)[6]
Analyse the effect on a country’s exchange rate of a fall in the rate of interest.
(d)[8]
Discuss whether a rise in spending on capital goods will help to achieve the aims of government policies.
Worked solution & mark scheme
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