A household plans to borrow £16,000 for one year to pay for home improvements. Before it signs, the lender cuts the annual interest rate it is offering from 7% to 4.5%. Assume the full £16,000 is owed for the whole year and there are no fees. What does the cut mean for the household?
The year's interest is £1,120 lower, so the improvements become cheaper to finance
The year's interest is £400 higher, so the improvements become dearer to finance
The year's interest is £720 lower, so the improvements become cheaper to finance
The year's interest is £400 lower, so the improvements become cheaper to finance
116 exam-style questions on OCR GCSE Economics 3.6 Monetary policy, covering 3.6.1 What is monetary policy, 3.6.2 Monetary policy and macro objectives, and 3.6.3 Effects of monetary policy. Each one has a worked solution and a mark scheme showing where the marks go.