Sample 2

IB Economics: Sample 2

(a) Explain two consequences of a central bank decreasing interest rates. [10]Student answerAn interest rate is the cost of borrowing. It is controlled by the central bank in an economy that sets the base interest rate which is the rate that exists across the economy. When the central bank decreases the rate there are two consequences for the economy. The first is a rise in borrowing as people pay less on loans and buy...

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