An economy initially has demand-pull inflation. Table 1 shows planned capital spending by service-sector firms immediately before and after a substantial rise in Bank Rate. Other components of total spending are unchanged.
| Source of finance | Before the rise in Bank Rate (£ billion) | After the rise in Bank Rate (£ billion) |
|---|---|---|
| Firms' own funds | 46 | 49 |
| New borrowing | 34 | 27 |
Which conclusion is most likely?
Own-funded investment has risen, so demand-pull inflationary pressure is likely to increase.
Borrowed investment has fallen, so the general price level is likely to fall rather than rise more slowly.
Overall planned investment has fallen, so demand-pull inflationary pressure is likely to ease.
Overall planned investment has fallen, so demand-pull inflationary pressure is likely to increase.
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.