Several commercial banks run short of cash for a few weeks because some large business customers are late repaying their loans. The banks cannot borrow money elsewhere, so the Bank of England lends them short-term funds.
What is the most likely result of this support for the wider economy?
Banks can carry on lending to other firms, so planned investment can go ahead and economic activity may be supported
The late-paying firms no longer have to repay their loans, so they can invest more and economic activity may rise
The Bank of England's loans add extra notes and coins to the economy, so prices may rise and households may cut spending
The banks have to repay the Bank of England within weeks, so they may lend less to firms and investment may be delayed
60 exam-style questions on AQA GCSE Economics 2.5 The role of money and financial markets, covering 2.5.1a Functions of money, 2.5.1b Definition of money, 2.5.2a Agents in the financial sector, 2.5.2b The role of the Bank of England, and 2.5.2c The role of high street banks. Each one has a worked solution and a mark scheme showing where the marks go.