Banking

Traps in Banking

• Picks a closely related concept
  Learn related terms as contrasting pairs with one-line definitions, and identify which one the stem describes.
• Chooses a true but irrelevant statement
  Re-read the question's key term and test each option against it, not against whether it is true in general.
• Confuses central and commercial bank functions
  Central bank: issues currency, banker to government and banks, lender of last resort, monetary policy. Commercial banks: deposits, loans, payments for the public.
• Applies the rule for the opposite case
  Before answering, name the case in the stem (inelastic? price floor ABOVE equilibrium? point INSIDE the PPC?) and recall the rule for that case only.
• Confuses monetary and fiscal policy tools
  Monetary (central bank): interest/policy rate, open market operations, reserve requirements. Fiscal (government): taxation and public spending, budget deficit/surplus.
• Picks another type in the same classification
  Learn each classification as a table of types with one defining feature each (monopoly: one seller; monopsony: one buyer; command economy: central planning).
• Mismatches factors of production and rewards
  Land → rent; labour → wages; capital → interest; entrepreneur → profit.
• Confuses tax systems
  Look at the AVERAGE rate: rises with income = progressive; falls = regressive; constant = proportional.
• Confuses forms of business organisation
  Sole trader: one owner, unlimited liability. Partnership: 2–20 partners, usually unlimited liability. Limited company: separate legal entity, limited liability. Co-operative: one member one vote, surplus shared by patronage.