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Economics > Money and Banking > Flashcards

Money and Banking Flashcards

1
Q

What is the development of people and economies closely related to?

A

the use of money, the institutions that deal with money and the activities that relate to money

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2
Q

What is money often described as?

A

Money is often described as a great liberator of people

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3
Q

Why is money described as a great liberator of people?

A

As soon as people are able to exchange their labour and the items they produced by their labour for money, they are no longer tied to the bondage of a self sufficient existence

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4
Q

What are the functions of money?

A

Money is a medium of exchange
Money is a store of value
Money is a unit of account
Money is a standard of deferred payment

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5
Q

How is money a medium of exchange?

A
  • workers exchange their labour for money
  • shops exchange goods for money
  • Money eliminated the problems of barter trade
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6
Q

How does the separation of production and consumption have important implications on the economy?

A
  • It allows workers to do the job they are skilled at
  • Producers can produce the type of goods of their choice
  • Traders can engage in trade of their choice
  • Money allows specialisation
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7
Q

What are the advantages of specialisation?

A
  • Increase in output/productivity
  • Products of high quality
  • High salary/wage to the worker
  • Minimum wastage
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8
Q

How is money a store of value?

A
  • Money is a generally accepted legal tender
  • Therefore people such as individuals, businesses and enterprises tend to hold money
  • When money is held it serves as a store of value until it is used to pay for goods and services
  • Used to store wealth
  • Value of money must not change with time
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9
Q

How is money a unit of account?

A
  • Goods and services for sale have a price expressed in terms of the standard money
  • When transactions are recorded, the bookkeeping system of the country uses money as a unit of account
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10
Q

What are the advantages of using money as a unit of account?

A

Trade is simplified

Relative values of goods and services are expressed

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11
Q

How is money a standard of deferred payment?

A

Transactions are often arranged so that goods and services that are bought now are paid for later

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12
Q

What would happen if the use of deferred payments stop?

A

-A large part of the economy would come to a halt and many business enterprises would not be in the position to sell their goods

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13
Q

What forms of modern money are there?

A

Fiat money and deposit money

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14
Q

What are the types of modern money?

A

Coins
-Made from metal alloys, worth less than face value
Bank notes
-Issued by central banks, legal tender
Deposit money
-Created when someone deposits cash or cheques at a bank in a cheque account or other kind of demand deposit

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15
Q

What are money associated instruments?

A

Instruments that are used to pay or transfer money are often taken to be money themselves

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16
Q

What forms of money associated instruments are there?

A 
Cheques
Cards
Credit cards
Debit cards
Internet banking
Postal orders and money orders
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17
Q

How do cheques work?

A

a cheque authorises the bank to pay a sum of money in cash or to pay a sum of money to a person

18
Q

What are cards?

A

Consumer cards are issued by consumer organisations and retail businesses and give consumers access to credit
Bank transaction cards are only used to withdraw/deposit cash or cheques at ATMs, to transfer deposit money or pay accounts electronically

19
Q

What are credit cards?

A
  • They are issued to banks’ creditworthy clients on application
  • Holders use these cards to purchase goods and services
  • Banks pay for these with deposit money
20
Q

What are debit cards?

A
  • Issued by banks to clients who maintain cash balances on their accounts
  • These clients prefer not to use loans
21
Q

What is internet banking?

A
  • Clients can arrange access to their own accounts on the bank’s website
  • They can access their accounts and transfer deposit money balances from one account to the other if they have the person’s banking details
22
Q

What are postal orders and money orders?

A
  • These can be bought at any branch of the post office
  • They can then be used to pay for goods and services
  • The receiver can exchange them in the bank/post office for cash
23
Q

In which domain does the monetary system operate?

A

The circular flow model

24
Q

What are the 4 elements of the monetary system?

A

Money
Financial Intermediaries
Credit Instruments
Financial Market

25
Q

What is the Money element?

A

The policies, instruments and institutions employed by a country to regulate its money supply

26
Q

What is the Financial Intermediaries element?

A

Organisations that operate in financial markets linking lenders and borrowers

27
Q

What is the Credit Instruments element?

A

A document stating the amount of credit granted as well as payment procedures

28
Q

What is the Financial Market?

A

Consists of the money market and capital market

29
Q

What is Money’s exchange value?

A

It refers to what money can buy

30
Q

What is the value of money determined by?

A

Its purchasing power

31
Q

What is purchasing power?

A

How many goods and services money can buy

32
Q

What is the velocity if circulation?

A

The rate at which money circulates

33
Q

What is the relationship between the value of money and prices?

A

The value of money fluctuates when in comparison to prices ceteris paribus

34
Q

How do we measure the value of money in the real economy?

A

By looking at how prices change over time

35
Q

What is the most important price index in SA?

A

The consumer price index

36
Q

What does the CPI measure?

A

Changes in the cost of a basket of goods and services purchased by the typical urban family

37
Q

What is inflation?

A

A continuous increase in the general level of prices over a specific period of time

38
Q

How is the rate of inflation calculated?

A

from a price index number

39
Q

What gives the inflation rate for consumers?

A

The CPI

40
Q

Why is a lower inflation rate better for consumers?

A

The value of their money income is more stable

41
Q

Whose responsibility is it to stabalise the inflation rate?

A

The SARB

42
Q

What is the inflation target of SARB?

A

between 3% and 6%

Economics (7 decks)

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