Banks serving a seaside town raise the annual interest rate on their instant-access savings accounts from 2% to 3.5%. At the same time, they raise the variable interest rate charged on loans to local cafés from 6% to 9%. Several cafés already have these loans and are considering borrowing more to fit out additional premises. Many local households have little income left after paying for essentials.
Analyse the likely consequences for household saving, café borrowing and investment in additional premises.
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.