Question:

5. In 2021, the central bank of Turkey cut the interest rate on four occasions.

This was despite the country’s inflation rate rising from 15% at the start of the year to 36% at the end of the year.

Turkish commercial banks attracted more customers which led to a 10% rise in bank deposits.

The country’s currency, the Turkish lira, fell to a record low against the US dollar later that year.

(a) Define a central bank. [2]
(b) Explain two ways a commercial bank could attract more customers. [4]
(c) Analyse the possible causes of a fall in a country’s foreign exchange rate. [6]
(d) Discuss whether or not a cut in the interest rate will reduce inflation. [8]

Sample Answers: