Explain the following terms:
(i) Barter;
(ii) Interest rate;
(iii) Creditworthy customer - Leaving Cert Economics - Question 6 - 2010
Question 6
Explain the following terms:
(i) Barter;
(ii) Interest rate;
(iii) Creditworthy customer.
Name two commercial banks operating in Ireland.
Discuss two main funct... show full transcript
Worked Solution & Example Answer:Explain the following terms:
(i) Barter;
(ii) Interest rate;
(iii) Creditworthy customer - Leaving Cert Economics - Question 6 - 2010
Step 1
Explain the following terms:
(i) Barter
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Answer
Barter refers to the exchange of goods or services directly for other goods or services without using money as an intermediary. This method of trade has been largely replaced by monetary exchange but is still relevant in certain economic conditions.
Step 2
(ii) Interest rate
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Answer
The interest rate is the amount charged by lenders for the use of money expressed as a percentage of the principal. It represents the cost of borrowing money or the reward for saving money, influencing economic activities both for consumers and businesses.
Step 3
(iii) Creditworthy customer
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Answer
A creditworthy customer is an individual or entity that demonstrates a reliable ability to meet their financial obligations on time. This is typically assessed through credit history, income, and current debts.
Step 4
Name two commercial banks operating in Ireland.
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Answer
Allied Irish Banks
Bank of Ireland
Step 5
Discuss two main functions of commercial banks.
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Savings Facilities: Banks offer a safe place for individuals and corporations to deposit funds while earning interest.
Lending: They provide loans to individuals and businesses for various purposes, helping stimulate economic growth.
Step 6
Outline one economic reason why commercial banks should be regulated.
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Regulation of commercial banks is essential to protect consumers' interests and ensure the stability of the financial system. It helps prevent risky lending practices that could lead to economic instability.
Step 7
What do the initials ECB represent?
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The initials ECB stand for the European Central Bank.
Step 8
(ii) If the ECB was to increase interest rates, state and explain the effects this development could have on each of the following:
• Borrowers
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If the ECB increases interest rates, the cost of borrowing for individuals and businesses will rise. This could lead to higher monthly payments for loans, potentially causing financial strain on borrowers as disposable income decreases.
Step 9
• Savers
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Higher interest rates generally benefit savers as they receive increased returns on their deposits. This may encourage saving over spending, positively impacting the overall savings rate in the economy.
Step 10
• Irish Economy
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An increase in interest rates can slow down economic growth as borrowing costs rise for businesses. This could lead to reduced investment and consumer spending, potentially impacting employment rates and overall economic activity.
Step 11
(iii) State and explain two functions of the Central Bank of Ireland.
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Prints / Issues legal tender: The Central Bank has the exclusive authority to issue euro currency in Ireland and ensures its distribution through financial institutions.
Regulates the financial sector: It regulates banks and financial services to maintain stability and consumer protection, ensuring sound lending and borrowing practices.
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