Economic Problem Trade and Role of Banks Flashcards
What is the economic problem?
- “scarcity”
- This means that people want to satisfy unlimited needs with limited resources.
- The resources used in producing goods and services are also known as the four factors of production.
What are the four factors of production?
- Labour.
- Capital
- Natural resources.
- Entrepreneurship.
What is labour as a factor of production?
The work people do to produce goods and services.
Renumeration = salaries and wages.
What is Capital as a factor of production?
Refers to money and capital goods.
Renumeration = Interest
What is Natural resources as a factor of production?
Refers to all resources from nature.
Renumeration = Rent.
What is entrepreneurship as a factor of production?
Responsible for combining the other factors of production to ensure that goods and services are produced.
Renumeration = Profit
Due to the economic problem, business enterprises are also subject to choice.
- Consumers can choose how they spend money.
- The consumer pass up the advantages of the next best choice when the buy goods and services.
- Business enterprises pass up the advantages of selling / manufacturing the nest best choice when deciding which goods to sell / manufacture.
How does trade address the economic problem?
- Trade creates employment opportunities.
- When people become employed, the have more money available to satisfy their needs.
- Goods that are not available locally can be imported from other countries.
- Goods that are demanded by consumers abroad can be exported.
- The country receives money when goods are being exported.
What is a bank?
A bank is a financial institution where people can:
- Deposit money to keep it safe.
- Borrow money.
- Access different kins of financial services.
What is the role of banks in the economy?
Banks create money.
How does a bank work?
- People deposit their money into a bank.
- All banks are required to keep a certain percentage of the money that was deposited in reserve - the rest of the money can be lent to consumers.
- The money that banks lend to consumers is then used to stimulate the economy.
- This means that people use money to buy goods and services.
- Economic growth will take place when people spend money on buying goods and services.
What is the South African Reserve Bank (SARB)?
- Central bank of SA
- Commercial banks keep their money with the SARB.
- SARB acts as banker to the Government.
- SARB has the sole right to make, issue and destroy banknotes and coin in SA.
What is the Land Bank?
Offers financial services and financing to farmers.
What is the Development Bank of South Africa?
Aims to promote socio-economic development.
What is commercial banks?
Main functions of commercial banks are:
- Lending money to clients.
- Safekeeping the money of clients.
- Offering financial services to clients.
