OxfordAQA International GCSE Economics: Interest rates, revenue and taxation (9214) – 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 3.2.1.1 and 3.2.1.2 of the OxfordAQA International GCSE Economics (9214) specification, version 1.0, for exams from May/June 2025. Every country, firm and figure is invented, and the currency unit is the cu. Learn the content from the study guide and the revision notes first. Related: the course hub, the printable checklist and the diagnostics.

Questions

1. Define the term interest rate. [2]

2. A saver in Country A deposits 5,000 cu for one year.

(a) Calculate the simple interest earned at a rate of 4% and at a rate of 6%. [2] (b) Explain one reason why a rise in the interest rate may increase saving. [2]

3. A household has a variable-rate mortgage of 80,000 cu and an after-tax income of 30,000 cu a year. The interest rate rises from 6% to 8%.

(a) Calculate the increase in interest paid each year. [2] (b) Express the increase as a percentage of the household’s income. Give your answer to two decimal places. [1] (c) Explain how this change may affect the household’s spending. [3]

4. A firm in Country B is considering a machine that costs 120,000 cu and is expected to add 9,000 cu to profit each year.

(a) Calculate the expected annual return as a percentage of the cost. [1] (b) The firm can borrow the full cost at 6%. Calculate the annual interest and the profit remaining after interest. [2] (c) The interest rate rises to 9%. Calculate the effect on the profit remaining and state, with a reason, whether the firm should still buy the machine. [2]

5. A bank buys a van for 30,000 cu and sells it to a trader for 31,800 cu, paid in instalments. The price is fixed at the start.

(a) Calculate the mark-up as a percentage of the bank’s cost. [2] (b) Explain one way in which this arrangement differs from an interest-based loan. [2]

6. A bank in Country C pays savers 3% a year and charges borrowers 8% a year.

(a) Calculate the interest earned in one year on a deposit of 2,000 cu. [1] (b) Calculate the interest paid in one year on a loan of 2,000 cu. [1] (c) Explain one reason why the rate charged to borrowers is higher than the rate paid to savers. [2]

7. Country D charges income tax of 0% on the first 12,000 cu of income, 15% on income from 12,000 cu to 36,000 cu, and 35% on income above 36,000 cu.

(a) Find the tax due on 20,000 cu of income and express it as a percentage of that income. [2] (b) Calculate the tax paid on an income of 50,000 cu. [2] (c) Explain, using your answers, why this tax is progressive. [2]

8. Country E’s revenue in a year (billions of cu) was: income tax 18, corporation tax 7, sales tax 17, excise duties 6, import duties 3, other income 4.

(a) Calculate total revenue. [1] (b) Calculate direct taxes as a percentage of total revenue. Give your answer to one decimal place. [2] (c) Identify two indirect taxes from the table. [1] (d) Explain why government borrowing is not included in the table. [1]

9. Country E taxes fuel at 0.5 cu per litre. Household P has an income of 15,000 cu and uses 1,200 litres a year. Household Q has an income of 75,000 cu and uses 3,000 litres a year.

(a) Calculate the fuel tax paid by each household. [2] (b) Calculate the tax as a percentage of each household’s income. [2] (c) State, with a reason, whether the tax is progressive or regressive. [1]

10. Country E spends 14 billion cu on health, 10 on education, 18 on social protection, 4 on defence, 5 on transport and 8 on other items. Its revenue is given in question 8.

(a) Calculate total spending. [1] (b) Calculate the budget deficit. [1] (c) What percentage of total spending goes on health? Give one decimal place. [1] (d) State one way in which the deficit may be financed. [1]

11. The government of Country E is thinking of raising extra revenue by increasing the sales tax from 10% to 12%, instead of raising income tax.

(a) An item costs 150 cu before tax. Calculate the price paid at each rate. [2] (b) Evaluate whether raising the sales tax is a better way to raise revenue than raising income tax. [7]

12. The central bank of Country A raises interest rates. Analyse and evaluate the likely effects on consumers and on producers. [8]

Answers

1. The cost of borrowing (or the payment a saver receives) [1], stated as a percentage of the sum each year [1]. [2] Examiner insight: Definitions tend to gain credit when they give both the idea of a price or reward and the percentage per year.

2. (a) At 4%: 5,000 × 0.04 = 200 cu [1]. At 6%: 5,000 × 0.06 = 300 cu [1]. [2] (b) The reward for saving is higher [1]; the opportunity cost of spending now rises, because each unit spent gives up more future interest [1]. [2] Examiner insight: Explanations tend to need a reason as well as a result.

3. (a) Interest at 6% = 80,000 × 0.06 = 4,800 cu; at 8% = 6,400 cu [1]. Increase = 1,600 cu a year [1]. [2] (b) 1,600 ÷ 30,000 × 100 = 5.33% [1]. [1] (c) Higher repayments leave less income to spend [1]; spending on other goods falls by up to the extra 1,600 cu [1]; the effect is immediate because the mortgage is variable-rate [1]. [3] Examiner insight: Answers tend to gain more when the chain runs from repayment to disposable income to spending, using the figure from part (a).

4. (a) 9,000 ÷ 120,000 × 100 = 7.5% [1]. [1] (b) Interest = 120,000 × 0.06 = 7,200 cu [1]. Profit remaining = 9,000 − 7,200 = 1,800 cu [1]. [2] (c) Interest = 120,000 × 0.09 = 10,800 cu, so profit remaining = 9,000 − 10,800 = −1,800 cu (a loss) [1]. The firm should not buy, because the return of 7.5% is below the borrowing rate of 9% [1]. [2] Examiner insight: A decision tends to gain credit when tied to a comparison, here the return against the interest rate.

5. (a) Mark-up = 31,800 − 30,000 = 1,800 cu [1]. 1,800 ÷ 30,000 × 100 = 6% [1]. [2] (b) The bank’s return comes from selling an asset at an agreed price, not from a charge for lending money [1], so it does not change if market rates move later [1]. [2] Examiner insight: Strong answers say what the return is linked to; calling it “free of cost” tends to lose credit because the bank still earns the mark-up.

6. (a) 2,000 × 0.03 = 60 cu [1]. [1] (b) 2,000 × 0.08 = 160 cu [1]. [1] (c) The gap covers the bank’s costs and the risk that some loans are not repaid [1]; the remainder is the bank’s profit [1]. [2] Examiner insight: A reason tends to gain credit when it names what the gap pays for, not only that the bank wants more money.

7. (a) Taxable slice = 20,000 − 12,000 = 8,000 cu, so tax = 8,000 × 0.15 = 1,200 cu [1]. Average rate = 1,200 ÷ 20,000 × 100 = 6.0% [1]. [2] (b) Middle band: 24,000 × 0.15 = 3,600 cu [1]. Top slice: 14,000 × 0.35 = 4,900 cu, so total tax = 8,500 cu [1]. [2] (c) The average rate on 50,000 cu is 8,500 ÷ 50,000 = 17.0% [1], which is higher than 6.0% on 20,000 cu, so the percentage of income taken rises with income, which makes the tax progressive [1]. [2] Examiner insight: Showing the working band by band makes the method clear to a reader; applying 35% to the whole income is a common error.

8. (a) 18 + 7 + 17 + 6 + 3 + 4 = 55 billion cu [1]. [1] (b) Direct taxes = 18 + 7 = 25 [1]. 25 ÷ 55 × 100 = 45.5% [1]. [2] (c) Any two of sales tax, excise duties, import duties [1]. [1] (d) Borrowing must be repaid, so it is not income [1]. [1] Examiner insight: Pick taxes on spending, not on income or profit; corporation tax is a common wrong choice.

9. (a) P: 1,200 × 0.5 = 600 cu [1]. Q: 3,000 × 0.5 = 1,500 cu [1]. [2] (b) P: 600 ÷ 15,000 × 100 = 4.0% [1]. Q: 1,500 ÷ 75,000 × 100 = 2.0% [1]. [2] (c) Regressive: the richer household pays a smaller percentage [1]. [1] Examiner insight: Household Q pays more money, but the percentages decide the type of tax.

10. (a) 14 + 10 + 18 + 4 + 5 + 8 = 59 billion cu [1]. [1] (b) 59 − 55 = 4 billion cu [1]. [1] (c) 14 ÷ 59 × 100 = 23.7% [1]. [1] (d) By borrowing (for example selling government bonds) [1]. [1] Examiner insight: The deficit is spending minus revenue; reversing the subtraction gives a negative figure.

11. (a) At 10%: 150 × 1.10 = 165 cu [1]. At 12%: 150 × 1.12 = 168 cu [1]. [2] (b) For the sales tax: the base is wide and avoidance is hard, so revenue is reliable [1]; sellers collect it, so it is cheap to run [1]. Against it: it is regressive, because the rise from 165 cu to 168 cu falls on every buyer whatever their income [1]; it raises prices and may reduce spending [1]. Income tax: a progressive rise takes more from high earners and reduces inequality [1], but may weaken incentives or encourage avoidance [1]. Judgement, for example that the choice depends on whether revenue certainty or equity matters more, with a reason [1]. [7] Examiner insight: Evaluation tends to gain credit when both options are weighed against a stated aim and a supported judgement follows.

12. Consumers: saving is more rewarding [1], borrowing costs more, with higher repayments on variable-rate debt [1], so spending tends to fall [1]. Producers: loans cost more [1]; fewer projects have an expected return above the interest rate, so investment tends to fall [1]; lower spending and investment reduce demand [1]. Evaluation: the strength of the effect varies with how large the rise is, fixed-rate loans and confidence [1]; savers gain while borrowers lose, so the net effect depends on which group is larger [1]. [8] Examiner insight: Longer answers tend to gain credit when consumers and producers both get a developed chain of reasoning.

Where marks are usually lost

• Judging a tax progressive from the money paid, not the share of income.
• Applying the top band rate to the whole income.
• Writing “people borrow less” with no link to spending.
• Treating a rate rise as having the same effect on savers and borrowers.
• Describing sharia-compliant finance as having no return for the bank.
• Counting borrowing as revenue.
• Closing an evaluation with no judgement.

Next steps

• Go back over the revision notes and the study guide.
• Tick off the topic on the printable checklist and the course hub.
• Take the free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

OxfordAQA International GCSE Economics (9214) specification, version 1.0, for exams from May/June 2025, published by OxfordAQA: sections 3.2.1.1 and 3.2.1.2.