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Econ ch 15 ,16,17 ,19,21
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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
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