A finance provider has made fixed-rate loans to small firms. A community theatre, which is not connected to the finance provider, holds its reserve fund in a fixed-rate savings account.
When these arrangements were made, inflation was expected to remain at 2%. Table 1 shows the expected and actual rates for the year.
| Measure | Annual rate |
|---|---|
| Expected inflation | 2% |
| Actual inflation | 6% |
| Interest rate on the existing loans | 4% |
| Interest rate on the theatre's savings | 1% |
Explain how the unexpected inflation affects the purchasing power of the repayments received by the finance provider and the community theatre's savings. Use Table 1.
189 exam-style questions on AQA GCSE Economics 2.2 Government objectives, covering 2.2.1a The main economic objectives, 2.2.1b Conflicts between government objectives, 2.2.1c Other objectives and ethical considerations, 2.2.2a The significance of economic growth, 2.2.2b Causes, costs, benefits and policies for growth, 2.2.2c GDP measures and calculations, 2.2.3a Measuring employment and unemployment, 2.2.3b Types and causes of unemployment, 2.2.3c Consequences and policies for unemployment, 2.2.4a What inflation is, 2.2.4b Measuring inflation with the CPI, 2.2.4c Causes, consequences and control of inflation, 2.2.5a Balance of trade and balance of payments, 2.2.5b Current account surpluses and deficits, 2.2.5c Policies to influence the balance of payments, 2.2.6a Income and wealth inequality in the UK, 2.2.6b Causes and consequences of inequality, and 2.2.6c Redistributing income and wealth. Each one has a worked solution and a mark scheme showing where the marks go.