Greenbridge Bank plc is considering expanding lending to small businesses purchasing low-energy machinery. Table 1 shows current information and the bank's forecasts if the plan is introduced.
| Measure | Current | Forecast with plan |
|---|---|---|
| Customer deposits | £340 million | £365 million |
| Business lending | £180 million | £260 million |
| Average business-loan rate | 6.8% | 7.5% |
| Average savings rate | 2.4% | 2.7% |
| Annual interest income | £13 million | £19 million |
| Loan-default rate | 2.1% | 4.6% |
| Loan-loss provisions | £5 million | £14 million |
[ITEM A] Small businesses tell Greenbridge that they have profitable plans to buy low-energy machinery but lack enough retained profit. Supporters of the lending plan say new machinery may raise productivity, reduce energy costs and create jobs. Greenbridge would assess each application and could require security for larger loans. [ITEM B] Risk managers warn that many new applicants have short trading records and limited security. If economic conditions weaken, firms may struggle to repay. Depositors expect their money to remain safe and accessible, while regulators expect banks to control risks that could threaten financial stability.
Define the term 'unit of account'.
Using Table 1, calculate the total amount a business would repay after one year on a £24,000 loan charged at 7.5% simple interest.
Explain two possible benefits of Greenbridge Bank's services for savers and business borrowers.
Using Table 1, analyse how the plan may affect Greenbridge Bank's financial stability.
Do you think Greenbridge Bank plc should expand its lending to small businesses? Use Items A and B and your own economic knowledge to justify your view.
27 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.