U3A microecnomics decision makers: households, moneys, and banking Flashcards
4 functions of money
a medium of exchange
a method of deferred payment
a unit of account
a store of value
what are keys characteristics of money
durable
scarce
divisible
uniform
acceptable
what are the 2 finanical systems
central and commercial banks
Differences between central and commerical bank
they have a limit on how much money can be created and put into circulation
why are central banks run institutionally independently
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
why are central banks given so much power
to prevent economic crashes and keep markets stable
functions of central banks
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
what is the role and importance of central banks
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
roles of central banks
acts as banker to the government, holds country reserves of foreign currency and gold, issues bank notes, manages national debt, e.t.c
what are commercial banks
banks which aim to make a profit by providing a range of banking services to households and girms
services that commerical banks provide
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
Why is lending essential for our eocnomy
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.
How are interest rates of deposits determined
by the central banks base rate
how are intereest rates of borrowing determinded
it has to be higher than interest rate of deposits for commerical banks to make a profit
impact of commerical banks on savers
they incentivise people to save offering interest rates but also a secure place as well
impacts of commerical banks on consumers
convenience provide easy access to financial services
impact of commercial banks on borrowers
they offer loans which increase economic growth
what is income
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.
examples of earned income
as wages/ salaries
examples of unearned income
rent (collected from property), divided (recieved from shares), interest (acquired from savings), pensions and social security benefits.
what is disposable income
all personal income subtracted by income tax
what is real disposable income
it’s disposable income that is adjusted to take acount of inflation and also the purchasing power of money income.
What happens to purchasing power as prices rise
it decreases you can buy less g/s with the same money income
what happens to spending if interest rate increases
reduction, as borrowing interest rates have increased.
what is the life cycle theory of savings
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
what is a current expenditure
money spent on g/s to be consumed within a year such as food
what is a capital expenditure
money spent on fixed assets that are long lasting such as houses,
characteristics of rich people in spending
they spend a larger porportion of their income on luxury goods, consumer durables compareed to necessities
characteristics of poor people spending
they spend a larger percentage of their income on food then luxury goods
What occurs when income rises
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
what happens when income is low
low amount of income is saved most spent on neccessities.
What 3 factors drives change consumer spending
wealth, borrowing, thus interwhat est rate, and income tax rates (disposable income of individuals
what factors influence consumer spending
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
factors of borrowing money
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
what factors affect saving of money
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
why do people earn high salaries
limited supply of workers (higher qualification required, dangerous job, rare skill or talent)
high demand (a neccesity good
why do people earn lower salaries
if there’s a unlimited supply (there’s no skill needed )
low demand for the g/s the people work
Why can some people work the same job with different amounts of money earned
shortages or surpluses of workers in a particular region
length of service
differences in costs living in different regions
discriminations
what wage based facotrs influence choice of occupations
wages and salaries, commision and performance related pay, bonuses
what are non wage factors
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
how is wage rate determined
usually the equilibrium of supply of labour and demand of labour
what non wage factors affect the demand for labour
changes in the prices of other FOP’s
technology advancements
popularity of the g/s
productivity of labour
price of capital
what non wage factors affect the supply of labour
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
what effect does mininum wage have
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
what are trade unions
an association which represents the interests of a group of workers
functions of trade unions
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
what’s collective bargains
when representatives of workers negotiate with employers. effective as there’s a larger consequence for employers if they don’t meet commands
advantages of joining a trade union for workers
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
disadvantages of joining a trade union for a worker
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
advantages of trade unions for firms
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.
what are the disadvantages of unions for firms
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
advantages of trade unions for economies
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
disadvantages of trade unions for economy
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
what facotrs affect the strength of trade unions
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
define industrial action
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
why does industrial action occur
when negotations with emplyers break dwon unions will take industrial action
examples of industrial action
reducing hours, overtime ban, go slow, or stop work
