Edexcel A Level Economics B
Edexcel A Level Economics B 1.4 The Role of Credit in the Economy Exam Questions
Free Edexcel A Level Economics B exam questions on 1.4 The Role of Credit in the Economy, with mark schemes. Covers money, credit, interest rates and the banking system.
1.4 The Role of Credit in the Economy exam questions
1 question pack of real past exam questions with its mark scheme. Answer every question without notes, then mark your answers line by line against the mark scheme.
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A Level Economics Flashcards
Every answer is written in mark scheme wording, so you learn exactly what examiners give marks for. Pick your exam board, then test yourself with the questions on this page.
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About Edexcel A Level Economics B 1.4 The Role of Credit in the Economy
1.4 explains why money and credit matter to households and firms. Questions often link interest rates to spending, saving and borrowing decisions.
What you need to know
- Money Functions of money: medium of exchange, store of value, unit of account and standard of deferred payment.
- Credit and interest rates Interest is the price of borrowing and the reward for saving. Know how rate changes affect households and firms.
- Banks How commercial banks create credit, and the role of the central bank including setting interest rates.
- Credit and the economy Easy credit supports spending and investment but can lead to excessive debt and instability.
Common mistakes in 1.4 The Role of Credit in the Economy
- Confusing interest rates set by commercial banks with Bank Rate set by the Bank of England.
- Listing the functions of money without examples.
- Assuming lower interest rates always increase spending, ignoring confidence.
Try three 1.4 The Role of Credit in the Economy exam-style questions
1. State two functions of money. (2 marks)
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Any two: medium of exchange, store of value, unit of account, standard of deferred payment (1 each).
2. Explain how a rise in interest rates could affect a business planning to expand. (3 marks)
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Borrowing becomes more expensive (1), so the cost of financing the expansion rises (1), reducing the expected return and making the firm more likely to delay or cancel investment (1).
3. Explain how commercial banks create credit. (2 marks)
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Banks lend out a large share of deposits (1), and loans are spent and redeposited, creating new deposits and more lending (1).
1.4 The Role of Credit in the Economy FAQs
What does Edexcel A Level Economics B 1.4 cover?
Money, credit, interest rates, commercial banks and the central bank, and the importance of credit to the economy.
Who sets Bank Rate in the UK?
The Monetary Policy Committee of the Bank of England.
How does credit link to market failure?
Asymmetric information and excessive risk-taking in lending can lead to bubbles and financial crises.
Revise this topic with flashcards: A Level Economics Flashcards, with mark scheme answers for Anki and Quizlet.
