Econ ch 15 ,16,17 ,19,21

• Bartering


  The act of swapping items in exchange for other items through the process of bargaining and negotiation
• Problems with bartering


  • Double coincidence of want
  • Indivisible
  • Non-portable
  • Difficulty in storing value
• Honey


  Anything generally accepted as payment for goods and services and repayment of debts
• Commodity money


  Money made from commodities like cowry shells, grain, gold and salt
• Representative money


  Coins, paper money, and different forms of certificates, gold and silver
• Types of representative money

  • Flat money (coins, banknotes, bank accounts)
  • Deposit money (bank deposits)
• Cash


  Physical form of money (banknotes and coins)
• Bank deposits


  Allow consumers to electronically transfer money easily from one bank account to another
• Central bank


  Consists of the money held by the central bank and used by commercial banks to make payments between themselves
• Functions of money


  • Medium of exchange
  • Measure of value
  • Means of deferred payments
  • Store of value
• Characteristics of money


  • Uniformity
  • Durability
  • Portability
  • Divisibility
  • Scarcity
• Money market


  A market where money is traded, including honey, bullion, and other markets where the product is money
• Commercial bank


  A retail bank that provides financial services to businesses and individuals, responsible for managing the deposits of account holders
• Factors affecting interest rates charged by commercial banks

  • Time of loan
  • Type of loan
  • Type of customer
• Interest rate


  The rate at which commercial banks attract customers by giving them interest on their money
• Revenue for commercial banks

  Interest rate on loans, charging fees for offering financial services, managing investments
• Functions of commercial banks

  • Accepts deposits
  • Cleans cheques
  • Provides safety deposit boxes
  • Provides money transfer facilities
  • Offers internet banking
• Fractional reserve banking


  When banks keep 10% of deposits as reserves and lend out the remaining 90%
• Central bank


  The monetary authority that oversees the economy's money supply and banking system, owned by the government
• Functions of central bank

  • Sole issuer of banknotes and coins
  • The government's bank
  • The bankers' bank
  • Lender of last resort
• Ways people get money

  • Providing services as labour in order to earn wages
  • Investing in savings and earning interest on their money
• Reasons people earn money

  • Buy goods and services
  • Save it
• Disposable income


  The income remaining after income tax has been deducted
• Disposable income decreases


  Spending decreases
• Interest rate increases


  Saving, borrowing and spending decreases
• Consumer confidence is low (during a recession)

  Saving increases, spending decreases
• Consumer confidence is high (during an economic boom)


  Saving and spending increases
• Inflation decreases the purchasing power of money
• Inflation increases


  Spending, saving and borrowing increases
• Age


  The younger you are, the more you are willing to spend. The older you are, the more you are willing to save.
• Saving


  Occurs when people put away a part of their income for future spending
• Reasons for saving


  • To earn interest from the bank
  • For precautionary reasons (to afford medical expenses)
• Disposable income increases


  Saving increases
• Interest rate increases

  Saving increases
• Income level increases


  Saving increases
• Borrowing


  Occurs when an individual or organisation takes out a loan from a bank or financial institution and pays it back over time with interest
• Reasons for borrowing


  • Fund education
  • Purchase a property
  • Start a business
• Interest rate increases


  Borrowing decreases
• Consumer confidence increases

  Borrowing increases
• Availability of funds increases

  Borrowing increases