Cambridge IGCSE Economics: Money, banking and household saving and borrowing (0455) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 3.1.1, 3.1.2 and 3.2.1 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. All countries, banks, households and figures are invented for practice. Read the study guide and the revision notes first if you need to. See also the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics.

Questions

1. State two functions of money and give an example of one of them. [3]

2. Explain two characteristics that make bank notes more suitable as money than cattle. [4]

3. A market in Country A has 9 goods and no money. Calculate the number of exchange ratios needed under barter and the number of prices needed if money is used. [3]

4. A household has gross income of 2,600 a month. Tax and other deductions are 450 and it spends 1,870. Calculate its disposable income, its saving and its saving ratio to 1 decimal place. [4]

5. The central bank of Country B acts as lender of last resort.

(a) State two other roles of a central bank. [2] (b) Explain why the lender of last resort role is important to consumers. [3]

6. Explain two ways in which a commercial bank can help a small producer. [4]

7. A bank in Country C holds deposits of 800,000 and has lent 520,000 at 10% a year. It pays depositors 3% a year on all deposits.

(a) Calculate the interest the bank receives. [1] (b) Calculate the interest the bank pays out. [1] (c) Calculate the difference between the two. [1] (d) Explain why a commercial bank charges borrowers a higher rate than it pays savers. [2]

8. A household has an interest-only loan of 35,000. The rate of interest rises from 4% to 6% a year.

(a) Calculate the increase in the household’s annual interest payment. [2] (b) Explain two ways the rise may change the household’s behaviour. [4]

9. The table shows monthly figures for two households in Country D.

	Disposable income	Spending
Household H	1,600	1,520
Household J	4,800	3,600

(a) Calculate the saving of each household. [2] (b) Calculate each household’s saving ratio. [2] (c) Explain two reasons why Household J saves a larger share of its income. [4]

10. A household in Country E has disposable income of 3,000 a month in year 1 and 3,150 in year 2. Its monthly spending is 2,670 in year 1 and 2,646 in year 2.

(a) Calculate the percentage change in disposable income and in spending, to 1 decimal place. [3] (b) Calculate the saving ratio in each year. [2] (c) Explain two reasons why the household may have spent less although its income rose. [4]

11. “A rise in the rate of interest will always reduce household spending.” Evaluate this statement. [8]

Answers

1. Any two functions [1] [1]: medium of exchange, measure of value, store of value or standard for deferred payment. One example of use, such as using notes to buy bread or stating a loan in money terms [1]. [3] Examiner insight: A list of two functions earns the function marks; the example is a separate point and has to describe money being used, not repeat the function’s name.

2. First characteristic named, for example durability [1], with explanation: notes last through repeated use while cattle can fall ill and die [1]. Second characteristic named, for example divisibility or portability [1], with explanation: notes come in many values and are easy to carry, while a cow cannot be divided to give change [1]. [4] Examiner insight: Naming a characteristic is not enough for the explanation mark. Contrast notes with cattle in the same sentence.

3. Barter ratios = 9 x 8 / 2 [1] = 36 [1]. With money, one price per good = 9 [1]. [3] Examiner insight: Working shown matters: a bare 36 is weaker evidence than the formula. Write the number of ratios and the number of prices clearly labelled.

4. Disposable income = 2,600 - 450 = 2,150 [1]. Saving = 2,150 - 1,870 = 280 [1]. Saving ratio = 280 / 2,150 x 100 [1] = 13.0% [1]. [4] Examiner insight: Using gross income of 2,600 as the base gives a different ratio; the disposable figure is the one to divide by.

5. (a) Any two [1] [1]: issues notes and coins; banker to the government; banker to commercial banks; sets monetary policy or interest rate; holds foreign currency reserves; supervises banks. [2] (b) If a bank cannot meet withdrawals, the central bank lends to it [1]. Savers keep their money safe and are less likely to panic and withdraw all their deposits [1]. Consumers keep access to savings, payments and credit, so confidence in the banking system is maintained [1]. [3] Examiner insight: A strong answer links the role to the consumer’s own position, savings and payments, rather than describing the banking system in general.

6. First way, for example a loan or overdraft [1], explained: it pays for equipment or stock before sales income arrives, so output can rise [1]. Second way, for example a business account and payment services [1], explained: it lets the firm receive payments and pay wages and suppliers safely [1]. [4] Examiner insight: Each way needs a development. Naming “loans” and “overdrafts” counts as only one way if the explanation is the same.

7. (a) 520,000 x 0.10 = 52,000 [1]. [1] (b) 800,000 x 0.03 = 24,000 [1]. [1] (c) 52,000 - 24,000 = 28,000 [1]. [1] (d) The bank needs a gap between the rates to cover its costs and make a profit [1]. It also has to charge more for lending because some borrowers may fail to repay [1]. [2] Examiner insight: In part (c) the gap is before running costs. Calling it profit is a common overstatement.

8. (a) Before: 35,000 x 0.04 = 1,400 [1]. After: 35,000 x 0.06 = 2,100, so increase = 700 a year [1]. [2] (b) Effect one: the household has less income left after repayments, so it cuts spending on other goods [1]. Reason: its repayments are now higher, 2,100 against 1,400 a year [1]. Effect two: saving now earns more, so it may save more [1]. Reason: the reward for not spending has risen, so saving is more attractive [1]. Other valid effects, such as borrowing less, can replace either. [4] Examiner insight: Say which way the behaviour moves. “Affects spending” is too vague to show understanding.

9. (a) H: 1,600 - 1,520 = 80 [1]. J: 4,800 - 3,600 = 1,200 [1]. [2] (b) H: 80 / 1,600 x 100 = 5% [1]. J: 1,200 / 4,800 x 100 = 25% [1]. [2] (c) Higher income leaves more after necessities, so a larger share can be saved [1] [1]. Possible second reason: J may have fewer dependants or commitments, or be saving for retirement, so it chooses to save more [1] [1]. [4] Examiner insight: Reasons that only restate the figures, such as “J has more money”, gain less than reasons that explain why a larger share is saved.

10. (a) Income: (3,150 - 3,000) / 3,000 x 100 = 5.0% [1]. Spending: (2,646 - 2,670) / 2,670 x 100 [1] = -0.9% [1]. [3] (b) Year 1: (3,000 - 2,670) / 3,000 x 100 = 11.0% [1]. Year 2: (3,150 - 2,646) / 3,150 x 100 = 16.0% [1]. [2] (c) Lower confidence about jobs or future income [1], so the household chose to build up savings [1]. Higher interest rates on savings or loans [1], which made saving more attractive or borrowing dearer [1]. [4] Examiner insight: Show the sign of the change. A fall in spending written as a positive percentage loses the point.

11. Points for the statement: a higher rate raises the cost of borrowing and of existing variable loans [1]; households with loans have less left to spend [1]; saving becomes more rewarding, so some spending is replaced by saving [1]. Points against: the effect depends on the size of the rise and whether it is expected [1]; households with no debts may not change their spending [1]; high income households may be little affected [1]; confidence or income growth could outweigh the rate, so spending still rises [1]. Judgement: it is likely to reduce spending for borrowers, so “always” is too strong, with a reason supported by the points [1]. [8] Examiner insight: Words such as “always” invite a counter-argument. Credit goes to a conclusion that makes a judgement and explains what it depends on.

Where marks are usually lost

• Naming a function or characteristic without explaining what it means.
• Mixing up the functions of the central bank and of commercial banks.
• Explaining the importance of banks in general terms, without referring to the group in the question.
• Using gross income instead of disposable income when finding saving.
• Not showing working or the sign of a percentage change.
• Claiming that higher interest rates always cut spending, or that more income always means more saving.
• Giving two reasons that are really the same point reworded.
• Ending an evaluation without a judgement.

Next steps

• Review the revision notes and the study guide.
• Go to the Cambridge IGCSE Economics hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, Cambridge University Press & Assessment (Cambridge Assessment International Education), sections 3.1.1, 3.1.2 and 3.2.1.