U3A microecnomics decision makers: households, moneys, and banking

Question 1

4 functions of money

Answer 1

a medium of exchange

a method of deferred payment

a unit of account

a store of value

Question 2

what are keys characteristics of money

Answer 2

durable

scarce

divisible

uniform

acceptable

Question 3

what are the 2 finanical systems

Answer 3

central and commercial banks

Question 5

Differences between central and commerical bank

Answer 5

they have a limit on how much money can be created and put into circulation

Question 6

why are central banks run institutionally independently

Answer 6

they have immense power as countries have risen and fallen due to the value of their currency to be free of politcal interference so they cant be used to control society

Question 7

why are central banks given so much power

Answer 7

to prevent economic crashes and keep markets stable

Question 8

functions of central banks

Answer 8

they control monetary policy by setting the official interest rate for lending, how much currency is created and in circulation. They also manage currency exchange, gold reserves and bonds. They also regulate the banking industry. they can act as the government bankers and a banks bank

Question 9

what is the role and importance of central banks

Answer 9

to implement the governments monetary policy, primarily to keep inflation low and steady, to control suplly of money, influencing and setting interest rates throughout the economy

Question 10

roles of central banks

Answer 10

acts as banker to the government, holds country reserves of foreign currency and gold, issues bank notes, manages national debt, e.t.c

Question 11

what are commercial banks

Answer 11

banks which aim to make a profit by providing a range of banking services to households and girms

Question 12

services that commerical banks provide

Answer 12

a place to store money and banks give interest back for the storage of it, it also has lending services where it actually just takes the money stored and gives it out but a higher interest then the initial one. credit card business, buying and selling currencies, and cash managements

Question 13

Why is lending essential for our eocnomy

Answer 13

provides resources for people to build things like hourses or industries to expand their businesses and grow. it turns money people leave around not using to funds for society to progress.

Question 14

How are interest rates of deposits determined

Answer 14

by the central banks base rate

Question 15

how are intereest rates of borrowing determinded

Answer 15

it has to be higher than interest rate of deposits for commerical banks to make a profit

Question 16

impact of commerical banks on savers

Answer 16

they incentivise people to save offering interest rates but also a secure place as well

Question 17

impacts of commerical banks on consumers

Answer 17

convenience provide easy access to financial services

Question 18

impact of commercial banks on borrowers

Answer 18

they offer loans which increase economic growth

Question 19

what is income

Answer 19

Income is the monetary compensation or reward earned by an individual or business in exchange for providing goods, services, or labor. It can come in various forms, such as wages, salaries, profits, interest, dividends, and rents, and is a key factor in determining an individual’s or business’s economic well-being and purchasing power.

Question 20

examples of earned income

Answer 20

as wages/ salaries

Question 21

examples of unearned income

Answer 21

rent (collected from property), divided (recieved from shares), interest (acquired from savings), pensions and social security benefits.

Question 22

what is disposable income

Answer 22

all personal income subtracted by income tax

Question 23

what is real disposable income

Answer 23

it’s disposable income that is adjusted to take acount of inflation and also the purchasing power of money income.

Question 24

What happens to purchasing power as prices rise

Answer 24

it decreases you can buy less g/s with the same money income

Question 25

what happens to spending if interest rate increases

Answer 25

reduction, as borrowing interest rates have increased.

Question 26

what is the life cycle theory of savings

Answer 26

theory of how a person chooses to spend and save throughout their lifetime. usually you will have no to little income when your young, then earn more money in 20s to 50s and retire in your 60s. your consumption path will differ from your income path. Most people start life by borrowing money to fill the gap of income and consumption, then during prime working years there will be more income than consumption there will be saving of money. Which is later used in retirement where the savings are utilllisated called dissaving using savings

Question 27

what is a current expenditure

Answer 27

money spent on g/s to be consumed within a year such as food

Question 28

what is a capital expenditure

Answer 28

money spent on fixed assets that are long lasting such as houses,

Question 29

characteristics of rich people in spending

Answer 29

they spend a larger porportion of their income on luxury goods, consumer durables compareed to necessities

Question 30

characteristics of poor people spending

Answer 30

they spend a larger percentage of their income on food then luxury goods

Question 31

What occurs when income rises

Answer 31

households will purchase more goods and serivces increasing in capital expenditures howeverending will not rise in porportion to their income as when incomes rise people also save a greater porportion of their income

Question 32

what happens when income is low

Answer 32

low amount of income is saved most spent on neccessities.

Question 33

What 3 factors drives change consumer spending

Answer 33

wealth, borrowing, thus interwhat est rate, and income tax rates (disposable income of individuals

Question 34

what factors influence consumer spending

Answer 34

real disposable income increase increases the consumer spending and possible saving

employment and job security decreases less spending is expected and increase in saving

interest rates, if interest rates are high there will be less borrowing and more saving so less consumer spending

Question 35

factors of borrowing money

Answer 35

as interest rates rise less people will borrow

the richer you are the more likely you will recieve a loan as you are more likely to pay it back

the less confident they are in the financial situation in the future they more likely they will borrow

they more ways there’s to borrow the more people will borrow

Question 36

what factors affect saving of money

Answer 36

future plans of people, if they have bigger plans they will save more to afford it

interest rates, the higher it is the more likely it is for people to save to get a higher interest

consumer confidence, the less confident the consumer is about job security and income the more they will save

the availability of saving schemes the more saving schemes are the more likely they will attract savers to save rather than spending

Question 37

why do people earn high salaries

Answer 37

limited supply of workers (higher qualification required, dangerous job, rare skill or talent)

high demand (a neccesity good

Question 38

why do people earn lower salaries

Answer 38

if there’s a unlimited supply (there’s no skill needed )

low demand for the g/s the people work

Question 39

Why can some people work the same job with different amounts of money earned

Answer 39

shortages or surpluses of workers in a particular region

length of service

differences in costs living in different regions

discriminations

Question 40

what wage based facotrs influence choice of occupations

Answer 40

wages and salaries, commision and performance related pay, bonuses

Question 41

what are non wage factors

Answer 41

fringe benefits (cars, discounts, e.t.c

size of firm

pensions

holidays

working hours

location

working conditions

opportunities for promotion

the status of the job and future career prospects

opportunities for job satisfaction

whether the job is dangerous

Question 42

how is wage rate determined

Answer 42

usually the equilibrium of supply of labour and demand of labour

Question 43

what non wage factors affect the demand for labour

Answer 43

changes in the prices of other FOP’s

technology advancements

popularity of the g/s

productivity of labour

price of capital

Question 43

what non wage factors affect the supply of labour

Answer 43

activity of trade unions

changes in size of working age population

education and training needed

improvements in fringe benefits

changes in conditions of competitive indusries

Question 44

what effect does mininum wage have

Answer 44

it creates a surplus meaning that perhaps more people will be unemployed as the market is looking for fewer workers than the market is providing

Question 45

what are trade unions

Answer 45

an association which represents the interests of a group of workers

Question 46

functions of trade unions

Answer 46

assist in negotiatons of wages, working hours, and conditions

protect or improve workers rights

education, train, and provide opportunities of workers increasing their human capital

Question 47

what’s collective bargains

Answer 47

when representatives of workers negotiate with employers. effective as there’s a larger consequence for employers if they don’t meet commands

Question 48

advantages of joining a trade union for workers

Answer 48

they benefit from collective bargaining to have their demands more likely to be met

they will have better pay

they will have limits or flexible working hours

they will have training in their job

and legal advice porvided

Question 49

disadvantages of joining a trade union for a worker

Answer 49

they must takepart in industrial action even if they don’t agree on the demands given to the employer they take part in the collective bargaining

indsutrial action is stressful bc. the conflict it creates between workers and unemployemnt

strike action results in a loss of pay

strike actions upset other people in economies and leads to wide spread critiicism

discrimination for employer about being in a union

Question 50

advantages of trade unions for firms

Answer 50

worker voice in the workplace will improve employee motivation

higher employeee motivation results in less sick days saving costs

higher motivation increases productivity thus output and profit

workers human capital increase due to union training also increasing productivity.

Question 51

what are the disadvantages of unions for firms

Answer 51

meets the demands from the workplace often result in increases of costs of production thus less output and profit

unions in decision making take more time to implement change and respond to compeition

management loses control and some power

Question 52

advantages of trade unions for economies

Answer 52

they solve majority of disputes that would’ve ended in strike action and disrupted the economy

fewer disruption means the market is more attractive for investments

also firm profits will often increase bc. the productivity and thus tax revenue will increase from corportation taxes

higher wages raises standards of living which in long term improve education and productivity

higher wages for households mean that incoem tax revenue increases for more expenditures on public and merit goods

Question 53

disadvantages of trade unions for economy

Answer 53

all forms of industrial action will reduce output and profit for a firm, the long it lasts the greater the impact on profit and output

strike action is highly disruptive especially if the industry is a essentional one

if economy undergoes several strike actions less corporations are willing to invest slowing down economic growht

Question 54

what facotrs affect the strength of trade unions

Answer 54

the porportion of workers in a union the higher the stronger it is

economic acitivity if income and growth in economy is high demand for labour will be high or falling unemplyment increasing strength

workers joining are skilled and speicialised, they are harder to replace

a consistent demand for product produces if product sold is inelastic consumers will be frustrated prompting employers to take action

favourable laws that allow strikes and industrial action strengthen power

Question 55

define industrial action

Answer 55

the process where unions coll on member to take specific actions to disrupt the workplace which put pressure on management to have their demands met

Question 56

why does industrial action occur

Answer 56

when negotations with emplyers break dwon unions will take industrial action

Question 57

examples of industrial action

Answer 57

reducing hours, overtime ban, go slow, or stop work