Money, central banks and commercial banks all play a key role in economies.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [5] Up to 3 marks on general performance: Up to 2 marks: the advantage of money over barter (1), such as it does not require a double coincidence of wants (1). Up to 2 marks: this function will depend on the degree of scarcity/portability/durability/ divisibility of money (1 + 1). Up to 2 marks on 'how well' it performs this function: Up to 2 marks: e.g. money performs this function very well because it is so advantageous, compared to barter (1), that there is universal acceptability in all parts of the country/ money is generally acceptable (1). Up to 2 marks: a high rate of inflation will affect its purchasing power (1) and this could contribute to making it less acceptable (1).
2. [7] Up to 5 marks: operates monetary policy (1), issues notes and coins/controls the money supply (1), sets interest rates (1), seeks to maintain price stability/control inflation (1), influencing saving/spending (1), controlling total demand (1), keeping inflation low is important in terms of e.g. maintaining competitiveness (1). Up to 5 marks: regulates the banking sector (1), seeks to ensure commercial banks will pursue sound policies (1), acts as a lender of last resort (1) to prevent banks going out of business (1), a strong banking sector is important for e.g. promoting investment (1). Up to 4 marks: acts as banker to the commercial banks (1), commercial banks can hold accounts at the central bank (1), these can be used to draw out cash when needed and to settle debts with other banks (1). Up to 5 marks: acts as banker to the government (1), operates accounts which receive government tax revenue and from which the government can make payments (1), manages the national debt (1) by issuing government securities/bonds (1), paying interest on government securities (1). Maximum of 4 marks for a list or list-like response.
3. [8] Up to 6 marks for stating that they should be nationalised: Up to 2 marks: the government would be able to provide financial support (1) and so there would be less risk of the banks collapsing (1). Up to 3 marks: the government should do this because a collapse of some banks would undermine confidence in the whole financial system (1) and this could have damaging effects on the wider economy (1), e.g. making it difficult to obtain funds to finance investment (1). Up to 3 marks: the government would reassure customers (1) by guaranteeing that a bank would be safe and that nobody would lose any money (1), which would make customers more willing to deposit funds in a bank, which could then be lent out to people, increasing the level of demand in the economy (1). Up to 3 marks: the government may be more concerned with social costs and benefits/less motivated by profit (1), may provide banking services to the poor (1), protect jobs (1), charge borrowers a lower rate of interest and pay savers a higher rate of interest (1). Up to 6 marks for stating that they should not be nationalised: Up to 2 marks: banks should be allowed to remain in the private sector (1) so that they are run in the most effective way possible (1). Up to 2 marks: the private sector will provide for more competition (1) and this should encourage them to aim to maximise profits (1). Up to 2 marks: it is logical in a market economy that an inefficient bank should be allowed to collapse (1) and then the scarce resources can be reallocated to a more productive use (1). Maximum of 4 marks for a list or list-like response.