A regional logistics firm is considering borrowing to build a temperature-controlled warehouse. The loan would be repaid after one year and simple interest would be charged. Table 1 shows information about the proposed investment.
| Item | Value |
|---|---|
| Loan required | £120,000 |
| Expected annual return from the warehouse | £7,800 |
| Interest rate before the change | 5% |
| Interest rate after the change | 7% |
Calculate the interest cost of the loan at each of the two interest rates.
Explain how the change in the interest rate is likely to affect the firm's decision about the warehouse and the future productive capacity of the economy.
75 exam-style questions on AQA GCSE Economics 2.1 Introduction to the national economy, covering 2.1.1a What an interest rate is, 2.1.1b Interest rates and consumer decisions, 2.1.1c Interest rates, producer decisions and calculations, 2.1.2a UK government revenue and spending, and 2.1.2b Direct, indirect and progressive taxation. Each one has a worked solution and a mark scheme showing where the marks go.