3. Macroeconomic decision makers Flashcards
3.1 Money and banking 3.2 Households 3.3 Workers 3.4 Trade unions 3.5 Firms 3.6 Firms and production 3.7 Firms’ costs, revenue and objectives 3.8 Market structures
Economic agents
Households (private individuals in society), firms that operate in the private sector of an economy and the government (the public sector of an economy)
Properties of money
Medium of exchange - A widely accepted economy
Unit of Account - Able to assign a unit to each account ($1 vs $10 - easy difference)
Store of value - possible to put money in a savings account for future use etc.
Bartering
A system of exchange where people trade non money items between each other.
Bad debts
Occur when people and businesses cannot repay a loan.
Borrowing
Occurs when an individual, firm, or the government takes out a loan fom a financial institution, paying back the debt with interest over a period of time.
Collateral
Security for a loan, eg. property in the case of a mortgage, or the car purchased in the case of a car loan.
Conspicuous consumption
Occurs when people purchase highly expensive goods and services due to status or desired image.
Consumer spending
Refers to the amount of household expenditure per time period.
Disposable income
Refers to the earnings of an individual after income tax and other charges have been deducted.
Aggregant demand (def)
The total of all of the demand in an economy in a year.
Aggregant demand (equation)
C + I + G + (x - m) = AD
C onsumer spending
business I nvestment
G overnment spending
e X ports
i M ports
Aggregant Demand
Dissaving
Occurs when people spend their savings (rudn down spending account) (tends to happen during recession bc those paid by hourly wages get less shifts - thus income falls)
Income
Total amount of earnings an individual recieves in a period of time. It may consist of wages, interest, dividends, profits and rental income.
Mortgage
A secured loan for the purchase of the property (repossession)
Saving
Occurs when a person puts aside some of their current income for future spending
Savings ratio
Refers to the proportion of household income which is saved instead of consumed in an economy
Wealth
Measured by the value of assets a person owns minus their liabilities (the amount they owe to others)
Low income - Spending, Saving, Borrowing
Spending
- Spend most of their income on necessities (eg. food, clothes, housing)
Saving
- Tends to be low as there is not much income lefft over after needs
Borrowing
- Borrow to fund their expenditure on capital items (furniture, cars, computers)
- In extreme cases may have to borrow to fund necessities expenditure
- Banks less likely to lend money to low-income earners as they represent higher risk.
Middle income - Spending, Saving, Borrowing
Spending
- Spend on necessities and some luxuries
- Spend a lower proportion of their income on food + other necessities
Saving
- Tends to save some money from their wages or salaries
Borrowing
- Borrow to fund expenditure on capital items (eg. furniture, cars, computers etc.)
- Use credit cards to pay for both capital and current expenditure
- Take out mortgage to purchase a home
High income - Spending, Saving, Borrowing
Spending
- Spend the smallest proportion of income on necessities.
- Purchase luxury goods and services
Saving
- High level of savings possible
- Save a greater proportion of their income than other groups
Borrowing
- Borrowing occurs but only small risk to repay loans and mortgages
- Banks lend money easily to high-income earners
- Generally less a need to borrow money to fund items of capital expenditure
Collective bargaining
Occurs when a trade union representative negotiates on behalf of the union’s members with the employer to reach an agreement that both sides find acceptable.
A go-slow
Occurs when workers decide to complete their work in a leisurely way and therefore productivity falls .
Industrial action
Any deliberate act to disrupt the operations of a firm in order to force the management to negotiate better terms and conditions of employment, e.g. strike
A sit-in
When union members go to their place of work, occupy the premises but do not undertake their normal work.