Eco topic 3 - Money & Banking

Money Definition

Money is anything that can be used and is generally acceptable as a means of payment for goods and services

Forms of Money

Functions of Money:

1. Medium of exchange

• Removes problem of both sides needing what other offers

• Intermediary of transactions

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Functions of Money: 2

Common measure for valuring goods and services

• allowing to compare prices easily

Functions of Money:

Can store value, save wealth

Functions of Money:

Enables payments to be made at a later date e.g. loan because it doesn’t erode

Characteristics of money:

Portable

Recognisable

Acceptable

Scarce

Stable in value

Divisible

Durable

Role of commerial banks

• Keeping money safe

• Lending out money

• Making and recieving pamenys

• Financing foreing trands

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Importance of commercial banks: Consumers

For Consumers

• Access to loans for major purchases

• Interest earned on savings

Importance of commercial banks:Producrers

• Business loans for investments

• financial advice for growth

• payment processing services

Importance of commercial banks: Economy

• Faciliates economic grwoth

• enables investment and innovation

• allocates resources effiecntly

• credit creation and money supply

Role of central bank

• Monetary authority of acounty resposocibl

• Banker to the government

• Set interest rate

• nanker to banks

• serve the government, banks implement monetary policies to achieve economic objectives

Importance of central banks : governements

• Central banks use interest rates to control inflation and keep ecnonomy stable

• Manage governemnt finances

• maintains stability- superviese commerialc banks

• control countrsi currncy- enough money in circulation bu tbu prevent ot much from being printed- which crea inlfation

Importance of central banks : Producers

• Stable Interest rates

• Predicatble Prices

• Cofident Banking

• Managing exchange rates

Importance of central: Consumers

• mortgage costs

• Savings retusn

• Inflation conrol

• Employmeny lavelns

• price stability

• banking secuitry

Dispoblae income

Disposable income is the money households have left after paying taxes and receiving government benefits, which can be spent or saved.

Consumption

consumption is the total expenditure by households on goods and services to satisfy needs and wants

Wealth

a stock of assets—such as property, land, shares, and savings—owned by individuals, which can generate income (rents, dividends) and provide financial security.

Rate of interest

the cost of borrowing money and the reward for saving, typically set by a country's Central Bank to manage economic activity.

average propensity to consume

average propensity to consume is the proport of househol disopsable income which is spent. The realtionship between disposable income and consumption - graphically at low level of income - dissaving. As income increase so does consumpotn as income > consumpion saving occurs.

• Low income normal spend most to all of their income

• Proportion fof income spnet decrease as income rises

Why do people earn an income

To Spend: Spending involves exchanging money for goods ans services. Spending could be on

Immediate consumption: Foof

Consumer durables: Funiture, computures

To Save

Saving is mostly that is set aside and not consumed

Savnigs could be kept at home or places into a bank account for future use

Why do people spend

• Satist immediat wants

• Purchase neccessiters

• Buy luxiuires

• Acquire conusmer durables

influences on spnding

Disposable income - The amount fo money available after taxes determine spending capacity

Job security - Stable employment encourages spendning whilst uncerntay reduces it

Wealth - Greater accumulated wealth provides confidence to spend

Confidence - Economic optimism about the future encourages current spending

Rate of Interest - Lower interest rates reduce the incentive to save and increase spending

Why do people save

• Emergency fund

• Future purchases

• Retirement plannign

refers to the income that consumers save

Key influences on Saving

Income

Wealth

Rate of intrest

Dissaving

Households daving can be negtaive when consumption expenidutres exceeds disposabl incoem. this is called dissaving

occurs when low income people must spend more than they earn to meet basic needs

Why do people borrow

Financial difficulties

expensive purchases

rfuture repayments

Average propsenity to save

savings / siposable income

Influences on Borrowing

Availbility if loans

Rate of interest

Social attiudes- culture view on debt and borrowing influence whether people consider taking out loans acceptable

Confiden - when peopel feel confident about te future inconme and ecnomic prospects, ther ay more willing

Factors affecting occupation choice - wage factors

Basic pay

Overtime

Bonuses

Commission

Factors affecting occupation choice - non-wage factors

• Job satisfaction

• Career prospects - progression

• Working conditions

• Fringe benefits

Factors limiting occupation choice

• Qualifationc

• skills and experioneces

• mobility

• oppurtuinty cost

Wage deteermination

• Traingin time

• Higher prodcutuvt

• Greater responsibliy

Minium wage

Setting a lgel minium hourly rate protects low-paid workers and establishes a wage floor in the econom

• above equalilbrium

Trade unions

Trade union represnt workes in negotioat with emoplyers wage and wokrignconditions. Their realtive bargin power sinficatnly influces wager determines

Demand and supply of labour

Demand for Labour

• Deaman for labour is a derived deimand - it depends on conumsers demand for the final product

Supply of labour

• Supply of labour refers to workers' willingness and abilty to work at a give wage

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Wage Equilbiurm

Wage equilbrium occurs where labour demand and supply curves intersect, balancing the number of workes employers are willing to hire with those willing to work. shift in demand or supply factors will adjust equilbrium affter wage and employment

Wage changes: Increa in Lbaour demand

Causes;

• rising demadn for the prodcut or service

• Increase in labour productivety

• Rise in price of capita equaipment

• Goverment subsid for emplyment

• expansion of industry

Result in higher wage and increase employment

Wage changes: decrease in Lbaour demand

Causes:

• Falling demadn for the product or service

• Decrease in labour productivity

• Fall in price of capital

• REsscession

• Industry decline

Lower wages and increased emplyment

Wage changes: Increase in Labour

Increase labour force

improved working conditions

reduced traing requirements

lower wage elseware

Elastcity of supply of labour determined by

1. Qualifications and skills required

2. Length of traing

3. LEvel of emplyment

4. mobility of labour

5. Time period

Elastcity of demand of labour determined by

Proprtion of labour costs

Replaced by capital

Specialtions and divison of labour

When prodcution is broken down into many seperate taksers ans workers specilise in a spefic stance

Work contrates ona particulr prodcut or task

Advatnsge of divion of labour

INcreadd sills and expertise

more effecient

Disadvatnges of divison of labour

woker bordeom and frustation

depdne on eveyone to be effeicent

low occupation mobility

Limitation of diviosn of labour

Size of the market

nature of product

consumer prefernces

need for felxiblty

Trade unions

Trade union is an association of wokers formed to resprent theries interes and improve theri pay and working condiotns’

Function of trade union

• Collective bargaining

• Represtatnion

• indutrai acion: striks

• Influnce goenrmn on lgatsations

Factors infleucenig strength of trade unions

• A high level of ecnomic acitivrt

• A high number of members

• A high level of skill

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