Unit 3 Money and Banking(3.1-3.5) Flashcards
What does Store of Value mean
It can be saved and will retain value
What does Unit of Account mean?
It is used to measure the value of goods and services
A medium of exchange?
INdividuals and firms are willing to trade goods and services for it because they know they can use it later to purchase other items
a standard of deferred payment
Many transactions in an economy are on credit, this works because money is a store of value
what are commercial banks
they are financial intermediaries who move funds from lenders to savers
What are central banks
manages a countrys currency,money supply and interest rates
main responsibilities of central bank
issuing banknotes and managing the currency
providing monetary stability
providing financial stability and ensuring that financial institutions
banker to the government
a lender of the last resort of the banking system
Main functions of commercial banks
accept deposits from savers
lend to households and firms
provide efficient means of payment
what do household earn from work
income
what is it called when households spend their income and when they do not spend their income
consumption and savings
different factors that can affect consumer spending
stage in an individuals life cycle
time of the year (holiday or seasons)
Amount of income
why do households save
to finance future spending
factors that affect savings
Interest rates
Income (the more the income, the more they tend to save and if income is low, more is spent on essentials)
Stage in an individuals life cycle ( younger people tend to save less)
Confidence in the future
Government incentives
Why do people borrow and how
when they want to buy something but do not have enough money at the time, they borrow and pay back over time
What factors do an individuals choice of job depend on
wage rate
non monetary factors ( is the job dangerous or repetitive)
required skills
the alternatives and opportunity cost
What reasons will earnings likely be higher
If supply is limited ( takes many years to train like a doctor)
If demand is high ( business will earn large sums from selling their output)
Why do skilled workers earn more than unskilled workers
supply is limited and output is worth more so demand is higher
Why do private sector workers earn more than public sector workers
Governments have limited funds and maximising profits arent a priority.( These workers are compensated with good pensions and greater job security)
Why is earnings in manufacturing higher than in agriculture
it is easier to increase productivity which leads to more money for the business.Businesses will then reward them more highly
What are trade unions
They are organisations that represent employees and hold talks with employers.
They have more power than an individual would have and allows wages and other demands to be met
What is specialisation
when jobs are divided into smaller tasks
why is specialisation used
it is easier for the worker to learn what to do and by repeating the same task they can become very productive
what is the disadvantages of specialisation
the work is repetitive and not very challenging
What does specialisation mean for the business
It is easy to recruit and train workers to do the jobs and productivity may be high
What do employers do with trade unions
they may inform trade unions of decisions,consult with the trade unions or negotiate with the trade unions
What can trade unions be involved with
redundancies(when workers lose their jobs because the job no longer exists)
dismissals(workers get fired)
training
working conditions
payment
terms and conditions of employment
changes to job descriptions
what actions can trade unions take
representing employee views in meetings or to the media
undertaking a work to rule( workers stop working overtime)
strike( employees stop working but also do not recieve pay
Benefits for employees for joining trade unions
provides greater protection, expertise(legal advice) and they will bargain for better pay and conditions
disadvantages of joining trade union
Theres a cost to join
employees prefer to bargain individually
trade union may take actions that an individual employees disagrees with
how can trade unions hep employers
they can find solutions to problems
gain the agreement and cooperation of employees
understand issues from employee perspectives
how can trade unions cause problems for managers
pushing up wages and costs
opposing changes
taking strike action
What is a private sector firm
firms run by individuals, not the government
what is a secondary sector firm
take raw materials and process them(manufacturing)
what are tertiary sector firms
they provide services( education or banking)
some ways the size of a firm can be measured
its sales
what it owns(assets)
Number of employees
advantages of being a small firm
they can make decisions fast, be innovative and create new products
disadvantages of being a small firm
lack market power
may lack experience
may lack assets needed to raise funds
may have high unit costs
Causes of the growth of firms
internally-by selling more goods and investing the profits made
externally-by joining with another business through a merge or a takeover
what is a merger
two or more firms join and become one firm
what is a takeover
one business gains control of another(can be hostile)
what are the different types of mergers
horizontal
backward vertical
forward vertical
conglomerate integration
what is horizontal mergers
firms at the same stage of production join together( car manufacturer joins with another car manufacturer )
what is backward vertical mergers
a firm joins with another firm at an earlier stage of production( Starbucks buys coffee bean farms)
what is a forward vertical merger
a firm joins with a business at a later stage of the production process( car manufacturer joins with car dealership)
what is conglomerate integration
a firm joins with a business in a different sector
what is the purpose of a horizontal integration
remove competitors
gain market share
purpose of forward vertical integration
gain and secure access to the market
purpose of backward vertical integration
secure supplies
purpose of conglomerate integration
spread risk by operating in different markets so the firm is less vulnerable
what is internal economies of scale
when unit costs fall as a firm increases the scale of its production
what is a purchasing economy
when a firm saves costs through bulk buying
what is a marketing economy
when advertising and marketing budget is spread over an increasing output
what is a technical economy
cost savings through mass production techniques
what is risk bearing economies
when a business operates in different markets( if sales fall in one market, other markets may not be affected so profits are more stable)
what are internal diseconomies of scale
when unit costs rise as a firm increases the scale of its production( due to communication or control problems
what are external economies of scale
when unit costs are lower at every level of output due to factors outside the business
factors that lead to external economies of scale
if the industry grows, there may be a growth in specialist suppliers
being located in an area where there is already a trained workforce so the company has no training costs
