A commercial bank considers that some business borrowers have become less likely to repay their loans. It raises the annual interest rate on unsecured business loans from 6.5% to 9.5%, while keeping the annual interest rate on its easy-access savings accounts at 2.5%. Several furniture producers had planned to use the business loans to purchase new machinery.
Analyse the likely effects of the bank's decisions on saving, borrowing and investment.
82 exam-style questions on OCR GCSE Economics 2.8 The role of money and financial markets, covering 2.8.1 Money as a medium of exchange, 2.8.2 Role of the financial sector, 2.8.3 Importance of the financial sector, 2.8.4 Interest rates and saving, borrowing, investment, and 2.8.5 Effect of interest rate changes. Each one has a worked solution and a mark scheme showing where the marks go.