Microeconomic Decision Makers Chapter Notes | Economics for GCSE/IGCSE - Year 11 PDF Download

 Page 1


Money and banking
? Money is a medium of exchange of goods and services
? We need money in order to exchange goods and services with one another.
? In the past, the barter system was used, it was exchanging a good or service for another food or
service. This had a lot of problems as some goods were perishable and non-durable, indivisibility or
lack of portability
? Today, the notes and coins we use are durable, uniform, divisible, portable and generally accepted.
These are the characteristics of good money
? The functions of money
? Money is a medium of exchange
? Money is a . Money acts as a unit of account, allowing us to compare and medium of value
state the worth of different goods and services
? Money is a . It holds its value for a long time, allowing us to save it for future store of value
purposes
? Money is a . Deferred payment are purchases on credit, where the means of deferred payment
consumer can pay later for the goods or service they buy
? Banks are financial institutions that act as an intermediary between borrowers and savers. It is the
money we save at banks that is lent out as loans to other individuals and businesses
? Commercial banks are those banks that have many retail branches located in most cities and towns.
For example HSBC.
? There is also a central bank that governs all other commercial banks in a country. For example reserve
bank of India (RBI)
? Functions of a commercial bank
? Accepts deposits in the form of savings
? Aid customers in making and receiving payments via their bank accounts
? Give loans to businesses and private individuals
? Buying and selling shares on customers behalfs
? Providing insurance
? Exchange of forreign currencies
? Provide financial planning advice
? Functions of a central bank
? It issues notes and coins of the national currency
? It manages all payments relating to the government
? It manages national debt. Central banks can issue and repay public debts on the government;s
behalf
? It supervises and controls all the other banks in the whole economy, even holding their deposits
and transferring funds between them.
? It is the lender of last resort to commercial banks. When other banks are having financial
difficulties, the central bank can lend them money to prevent them from going bankrupt
? It manages the country’s gold and foreign currency reserves. These reserves are used to make
international payments and adjust their exchange rate/currency value
? It operates the monetary policy in an economy
Page 2


Money and banking
? Money is a medium of exchange of goods and services
? We need money in order to exchange goods and services with one another.
? In the past, the barter system was used, it was exchanging a good or service for another food or
service. This had a lot of problems as some goods were perishable and non-durable, indivisibility or
lack of portability
? Today, the notes and coins we use are durable, uniform, divisible, portable and generally accepted.
These are the characteristics of good money
? The functions of money
? Money is a medium of exchange
? Money is a . Money acts as a unit of account, allowing us to compare and medium of value
state the worth of different goods and services
? Money is a . It holds its value for a long time, allowing us to save it for future store of value
purposes
? Money is a . Deferred payment are purchases on credit, where the means of deferred payment
consumer can pay later for the goods or service they buy
? Banks are financial institutions that act as an intermediary between borrowers and savers. It is the
money we save at banks that is lent out as loans to other individuals and businesses
? Commercial banks are those banks that have many retail branches located in most cities and towns.
For example HSBC.
? There is also a central bank that governs all other commercial banks in a country. For example reserve
bank of India (RBI)
? Functions of a commercial bank
? Accepts deposits in the form of savings
? Aid customers in making and receiving payments via their bank accounts
? Give loans to businesses and private individuals
? Buying and selling shares on customers behalfs
? Providing insurance
? Exchange of forreign currencies
? Provide financial planning advice
? Functions of a central bank
? It issues notes and coins of the national currency
? It manages all payments relating to the government
? It manages national debt. Central banks can issue and repay public debts on the government;s
behalf
? It supervises and controls all the other banks in the whole economy, even holding their deposits
and transferring funds between them.
? It is the lender of last resort to commercial banks. When other banks are having financial
difficulties, the central bank can lend them money to prevent them from going bankrupt
? It manages the country’s gold and foreign currency reserves. These reserves are used to make
international payments and adjust their exchange rate/currency value
? It operates the monetary policy in an economy
Households
? Disposable income is the income of a person after all income-related tax and charges have been
deducted
? Spending (Consumption)
? The buying of goods and services is called consumptions. The money spent on consumption is
called consumer expenditure
? People consume in order to satisfy their needs and wants and give them satisfaction
? Factors affecting consumption
? Disposable income
¦ The more the disposable income, the more people consume
? Wealth
¦ The more wealthy (having assets as property, jewels, company shares) a person is, the
more he spends
? Consumer confidence
¦ If the consumers are confident of keeping their jobs and their future incomes, then they
might be encouraged to spend more now, without worries.
? Interest rates
¦ If the interest rates provided by banks on savings are high, consumers might save more
so they can earn interest and thus consumer expenditure will fall.
? Saving
? Saving is income not spent(delaying consumption). People can save money by depositing in
banks and withdraw it at a later date with the interest.
? Factors affecting saving
? Saving for consumption
¦ People save so that they can consume later. They save money so that they can make
bigger purchases in the future. Thus, saving can depend on the consumer's future plans
? Disposable income
¦ If the amount of disposable income people have is high, the more likely that they will
save. Thus, rich people save a higher proportion of their incomes than poor people.
? Interest rates
¦ People also save so that their savings may increase overtime with the interest added.
Interest is the return on saving, the longer you save an amount, the higher the amount,
the higher the interest received
? Consumer confidence
¦ If the consumer is not confident about his job security and incomes in the future, he
many save more now
? Availability of saving schemes
¦ Banks now offer a variety of saving schemes. When there are more attractive schemes
that can benefit consumers, they might resort to saving rather than spending
Page 3


Money and banking
? Money is a medium of exchange of goods and services
? We need money in order to exchange goods and services with one another.
? In the past, the barter system was used, it was exchanging a good or service for another food or
service. This had a lot of problems as some goods were perishable and non-durable, indivisibility or
lack of portability
? Today, the notes and coins we use are durable, uniform, divisible, portable and generally accepted.
These are the characteristics of good money
? The functions of money
? Money is a medium of exchange
? Money is a . Money acts as a unit of account, allowing us to compare and medium of value
state the worth of different goods and services
? Money is a . It holds its value for a long time, allowing us to save it for future store of value
purposes
? Money is a . Deferred payment are purchases on credit, where the means of deferred payment
consumer can pay later for the goods or service they buy
? Banks are financial institutions that act as an intermediary between borrowers and savers. It is the
money we save at banks that is lent out as loans to other individuals and businesses
? Commercial banks are those banks that have many retail branches located in most cities and towns.
For example HSBC.
? There is also a central bank that governs all other commercial banks in a country. For example reserve
bank of India (RBI)
? Functions of a commercial bank
? Accepts deposits in the form of savings
? Aid customers in making and receiving payments via their bank accounts
? Give loans to businesses and private individuals
? Buying and selling shares on customers behalfs
? Providing insurance
? Exchange of forreign currencies
? Provide financial planning advice
? Functions of a central bank
? It issues notes and coins of the national currency
? It manages all payments relating to the government
? It manages national debt. Central banks can issue and repay public debts on the government;s
behalf
? It supervises and controls all the other banks in the whole economy, even holding their deposits
and transferring funds between them.
? It is the lender of last resort to commercial banks. When other banks are having financial
difficulties, the central bank can lend them money to prevent them from going bankrupt
? It manages the country’s gold and foreign currency reserves. These reserves are used to make
international payments and adjust their exchange rate/currency value
? It operates the monetary policy in an economy
Households
? Disposable income is the income of a person after all income-related tax and charges have been
deducted
? Spending (Consumption)
? The buying of goods and services is called consumptions. The money spent on consumption is
called consumer expenditure
? People consume in order to satisfy their needs and wants and give them satisfaction
? Factors affecting consumption
? Disposable income
¦ The more the disposable income, the more people consume
? Wealth
¦ The more wealthy (having assets as property, jewels, company shares) a person is, the
more he spends
? Consumer confidence
¦ If the consumers are confident of keeping their jobs and their future incomes, then they
might be encouraged to spend more now, without worries.
? Interest rates
¦ If the interest rates provided by banks on savings are high, consumers might save more
so they can earn interest and thus consumer expenditure will fall.
? Saving
? Saving is income not spent(delaying consumption). People can save money by depositing in
banks and withdraw it at a later date with the interest.
? Factors affecting saving
? Saving for consumption
¦ People save so that they can consume later. They save money so that they can make
bigger purchases in the future. Thus, saving can depend on the consumer's future plans
? Disposable income
¦ If the amount of disposable income people have is high, the more likely that they will
save. Thus, rich people save a higher proportion of their incomes than poor people.
? Interest rates
¦ People also save so that their savings may increase overtime with the interest added.
Interest is the return on saving, the longer you save an amount, the higher the amount,
the higher the interest received
? Consumer confidence
¦ If the consumer is not confident about his job security and incomes in the future, he
many save more now
? Availability of saving schemes
¦ Banks now offer a variety of saving schemes. When there are more attractive schemes
that can benefit consumers, they might resort to saving rather than spending
? Borrowing
? Borrowing is the simple borrowing of  money from a person/institute. The lender gives the
borrower money. The lender is usually the bank which gives out loans to customers
? Factors affecting borrowing
? Interest rates
¦ Interest is also the cost of borrowing. When a person takes a loan, he must repay the
entire amount at the end of a fixed period while also paying an amount of interest
periodically. When the interest rates rise, the people will be reluctant to borrow and vice
versa
? Wealth/income
¦ Banks will be more willing to lend to wealthy and high-income earning people, because
they are more likely to be able to repay the loans, rather than the poor. So even if they
would like to borrow, the poor end up being able to borrow much lesser than the rich
? Consumer confidence
¦ How confident people feel about their financial situation in the future may affect
borrowing too. For example, if they think that prices will rise(inflation) in the future, they
might borrow now to make big purchases.
? Ways of borrowing
¦ The number of ways to borrow can influence borrowing. Nowadays there are many
borrowing facilities such as overdrafts, bank loans etc. and there are more credit(future
payment) options such as hire purchases(payment is done in installments overtime),
credit cards etc.
? Expenditure patterns between income groups
? The rich people spend, save and borrow more amounts than the poor
? The poor spend higher proportions of their disposable income, especially on necessities than
the rich. The poor save less proportions of their disposable income in comparison with the rich
Page 4


Money and banking
? Money is a medium of exchange of goods and services
? We need money in order to exchange goods and services with one another.
? In the past, the barter system was used, it was exchanging a good or service for another food or
service. This had a lot of problems as some goods were perishable and non-durable, indivisibility or
lack of portability
? Today, the notes and coins we use are durable, uniform, divisible, portable and generally accepted.
These are the characteristics of good money
? The functions of money
? Money is a medium of exchange
? Money is a . Money acts as a unit of account, allowing us to compare and medium of value
state the worth of different goods and services
? Money is a . It holds its value for a long time, allowing us to save it for future store of value
purposes
? Money is a . Deferred payment are purchases on credit, where the means of deferred payment
consumer can pay later for the goods or service they buy
? Banks are financial institutions that act as an intermediary between borrowers and savers. It is the
money we save at banks that is lent out as loans to other individuals and businesses
? Commercial banks are those banks that have many retail branches located in most cities and towns.
For example HSBC.
? There is also a central bank that governs all other commercial banks in a country. For example reserve
bank of India (RBI)
? Functions of a commercial bank
? Accepts deposits in the form of savings
? Aid customers in making and receiving payments via their bank accounts
? Give loans to businesses and private individuals
? Buying and selling shares on customers behalfs
? Providing insurance
? Exchange of forreign currencies
? Provide financial planning advice
? Functions of a central bank
? It issues notes and coins of the national currency
? It manages all payments relating to the government
? It manages national debt. Central banks can issue and repay public debts on the government;s
behalf
? It supervises and controls all the other banks in the whole economy, even holding their deposits
and transferring funds between them.
? It is the lender of last resort to commercial banks. When other banks are having financial
difficulties, the central bank can lend them money to prevent them from going bankrupt
? It manages the country’s gold and foreign currency reserves. These reserves are used to make
international payments and adjust their exchange rate/currency value
? It operates the monetary policy in an economy
Households
? Disposable income is the income of a person after all income-related tax and charges have been
deducted
? Spending (Consumption)
? The buying of goods and services is called consumptions. The money spent on consumption is
called consumer expenditure
? People consume in order to satisfy their needs and wants and give them satisfaction
? Factors affecting consumption
? Disposable income
¦ The more the disposable income, the more people consume
? Wealth
¦ The more wealthy (having assets as property, jewels, company shares) a person is, the
more he spends
? Consumer confidence
¦ If the consumers are confident of keeping their jobs and their future incomes, then they
might be encouraged to spend more now, without worries.
? Interest rates
¦ If the interest rates provided by banks on savings are high, consumers might save more
so they can earn interest and thus consumer expenditure will fall.
? Saving
? Saving is income not spent(delaying consumption). People can save money by depositing in
banks and withdraw it at a later date with the interest.
? Factors affecting saving
? Saving for consumption
¦ People save so that they can consume later. They save money so that they can make
bigger purchases in the future. Thus, saving can depend on the consumer's future plans
? Disposable income
¦ If the amount of disposable income people have is high, the more likely that they will
save. Thus, rich people save a higher proportion of their incomes than poor people.
? Interest rates
¦ People also save so that their savings may increase overtime with the interest added.
Interest is the return on saving, the longer you save an amount, the higher the amount,
the higher the interest received
? Consumer confidence
¦ If the consumer is not confident about his job security and incomes in the future, he
many save more now
? Availability of saving schemes
¦ Banks now offer a variety of saving schemes. When there are more attractive schemes
that can benefit consumers, they might resort to saving rather than spending
? Borrowing
? Borrowing is the simple borrowing of  money from a person/institute. The lender gives the
borrower money. The lender is usually the bank which gives out loans to customers
? Factors affecting borrowing
? Interest rates
¦ Interest is also the cost of borrowing. When a person takes a loan, he must repay the
entire amount at the end of a fixed period while also paying an amount of interest
periodically. When the interest rates rise, the people will be reluctant to borrow and vice
versa
? Wealth/income
¦ Banks will be more willing to lend to wealthy and high-income earning people, because
they are more likely to be able to repay the loans, rather than the poor. So even if they
would like to borrow, the poor end up being able to borrow much lesser than the rich
? Consumer confidence
¦ How confident people feel about their financial situation in the future may affect
borrowing too. For example, if they think that prices will rise(inflation) in the future, they
might borrow now to make big purchases.
? Ways of borrowing
¦ The number of ways to borrow can influence borrowing. Nowadays there are many
borrowing facilities such as overdrafts, bank loans etc. and there are more credit(future
payment) options such as hire purchases(payment is done in installments overtime),
credit cards etc.
? Expenditure patterns between income groups
? The rich people spend, save and borrow more amounts than the poor
? The poor spend higher proportions of their disposable income, especially on necessities than
the rich. The poor save less proportions of their disposable income in comparison with the rich
Trade Unions
? Trade unions are organizations of workers that aim at promoting and protecting the interest of their
members/workers. They aim to improve wage rates, working conditions and other job-related aspects.
? The functions of a trade union
? Negotiating improvements in non wage benefits with employers
? Defending employees rights
? Improving working conditions such as better working hours and better safety measures
? Improving pay and other benefits
? Supporting workers who have been unfairly dismissed or discriminated against
? Taking industrial actions such as strikes, overtime ban when employers don't satisfy their needs.
? Collective bargaining
? The process of negotiating over pay and other working conditions between trade unions and
employers
? When can trade unions argue for higher wages and better working condition
? Prices are rising
¦ The cost of living increases when prices increase and workers will want higher wages to
consume products and raise their families
¦ The sales and demand of the firm has increased
¦ Workers in other firms are getting a higher pay
¦ The productivity of the members has increased.
? Industrial disputes
? When firms don’t satisfy trade union wants or refuse to agree to their terms, the members of a
trade union can organize industrial disputes
? Overtime ban
¦ Workers refuse to work more than their normal hours
? Go slow
¦ Workers deliberately slow down production so the firm’s sales and profits go down
? Strike
¦ Workers refuse to work and may also protest or picket outside their workplace to stop
deliveries and prevent other non-union members from entering. They don’t receive any
wages during his time. This will halt all production of the firm
? Advantages of trade unions to workers
? Workers benefit from collective bargaining power by being able to establish better terms of
labour
? Workers feel a sense of unity and feel represented, increasing morale
? Lesser chance of being discriminated and exploited
? Disadvantages of trade unions to workers
? Workers might get lesser wages or none if they go on strike as the output and profits of the firm
falls and they refuse to pay
Page 5


Money and banking
? Money is a medium of exchange of goods and services
? We need money in order to exchange goods and services with one another.
? In the past, the barter system was used, it was exchanging a good or service for another food or
service. This had a lot of problems as some goods were perishable and non-durable, indivisibility or
lack of portability
? Today, the notes and coins we use are durable, uniform, divisible, portable and generally accepted.
These are the characteristics of good money
? The functions of money
? Money is a medium of exchange
? Money is a . Money acts as a unit of account, allowing us to compare and medium of value
state the worth of different goods and services
? Money is a . It holds its value for a long time, allowing us to save it for future store of value
purposes
? Money is a . Deferred payment are purchases on credit, where the means of deferred payment
consumer can pay later for the goods or service they buy
? Banks are financial institutions that act as an intermediary between borrowers and savers. It is the
money we save at banks that is lent out as loans to other individuals and businesses
? Commercial banks are those banks that have many retail branches located in most cities and towns.
For example HSBC.
? There is also a central bank that governs all other commercial banks in a country. For example reserve
bank of India (RBI)
? Functions of a commercial bank
? Accepts deposits in the form of savings
? Aid customers in making and receiving payments via their bank accounts
? Give loans to businesses and private individuals
? Buying and selling shares on customers behalfs
? Providing insurance
? Exchange of forreign currencies
? Provide financial planning advice
? Functions of a central bank
? It issues notes and coins of the national currency
? It manages all payments relating to the government
? It manages national debt. Central banks can issue and repay public debts on the government;s
behalf
? It supervises and controls all the other banks in the whole economy, even holding their deposits
and transferring funds between them.
? It is the lender of last resort to commercial banks. When other banks are having financial
difficulties, the central bank can lend them money to prevent them from going bankrupt
? It manages the country’s gold and foreign currency reserves. These reserves are used to make
international payments and adjust their exchange rate/currency value
? It operates the monetary policy in an economy
Households
? Disposable income is the income of a person after all income-related tax and charges have been
deducted
? Spending (Consumption)
? The buying of goods and services is called consumptions. The money spent on consumption is
called consumer expenditure
? People consume in order to satisfy their needs and wants and give them satisfaction
? Factors affecting consumption
? Disposable income
¦ The more the disposable income, the more people consume
? Wealth
¦ The more wealthy (having assets as property, jewels, company shares) a person is, the
more he spends
? Consumer confidence
¦ If the consumers are confident of keeping their jobs and their future incomes, then they
might be encouraged to spend more now, without worries.
? Interest rates
¦ If the interest rates provided by banks on savings are high, consumers might save more
so they can earn interest and thus consumer expenditure will fall.
? Saving
? Saving is income not spent(delaying consumption). People can save money by depositing in
banks and withdraw it at a later date with the interest.
? Factors affecting saving
? Saving for consumption
¦ People save so that they can consume later. They save money so that they can make
bigger purchases in the future. Thus, saving can depend on the consumer's future plans
? Disposable income
¦ If the amount of disposable income people have is high, the more likely that they will
save. Thus, rich people save a higher proportion of their incomes than poor people.
? Interest rates
¦ People also save so that their savings may increase overtime with the interest added.
Interest is the return on saving, the longer you save an amount, the higher the amount,
the higher the interest received
? Consumer confidence
¦ If the consumer is not confident about his job security and incomes in the future, he
many save more now
? Availability of saving schemes
¦ Banks now offer a variety of saving schemes. When there are more attractive schemes
that can benefit consumers, they might resort to saving rather than spending
? Borrowing
? Borrowing is the simple borrowing of  money from a person/institute. The lender gives the
borrower money. The lender is usually the bank which gives out loans to customers
? Factors affecting borrowing
? Interest rates
¦ Interest is also the cost of borrowing. When a person takes a loan, he must repay the
entire amount at the end of a fixed period while also paying an amount of interest
periodically. When the interest rates rise, the people will be reluctant to borrow and vice
versa
? Wealth/income
¦ Banks will be more willing to lend to wealthy and high-income earning people, because
they are more likely to be able to repay the loans, rather than the poor. So even if they
would like to borrow, the poor end up being able to borrow much lesser than the rich
? Consumer confidence
¦ How confident people feel about their financial situation in the future may affect
borrowing too. For example, if they think that prices will rise(inflation) in the future, they
might borrow now to make big purchases.
? Ways of borrowing
¦ The number of ways to borrow can influence borrowing. Nowadays there are many
borrowing facilities such as overdrafts, bank loans etc. and there are more credit(future
payment) options such as hire purchases(payment is done in installments overtime),
credit cards etc.
? Expenditure patterns between income groups
? The rich people spend, save and borrow more amounts than the poor
? The poor spend higher proportions of their disposable income, especially on necessities than
the rich. The poor save less proportions of their disposable income in comparison with the rich
Trade Unions
? Trade unions are organizations of workers that aim at promoting and protecting the interest of their
members/workers. They aim to improve wage rates, working conditions and other job-related aspects.
? The functions of a trade union
? Negotiating improvements in non wage benefits with employers
? Defending employees rights
? Improving working conditions such as better working hours and better safety measures
? Improving pay and other benefits
? Supporting workers who have been unfairly dismissed or discriminated against
? Taking industrial actions such as strikes, overtime ban when employers don't satisfy their needs.
? Collective bargaining
? The process of negotiating over pay and other working conditions between trade unions and
employers
? When can trade unions argue for higher wages and better working condition
? Prices are rising
¦ The cost of living increases when prices increase and workers will want higher wages to
consume products and raise their families
¦ The sales and demand of the firm has increased
¦ Workers in other firms are getting a higher pay
¦ The productivity of the members has increased.
? Industrial disputes
? When firms don’t satisfy trade union wants or refuse to agree to their terms, the members of a
trade union can organize industrial disputes
? Overtime ban
¦ Workers refuse to work more than their normal hours
? Go slow
¦ Workers deliberately slow down production so the firm’s sales and profits go down
? Strike
¦ Workers refuse to work and may also protest or picket outside their workplace to stop
deliveries and prevent other non-union members from entering. They don’t receive any
wages during his time. This will halt all production of the firm
? Advantages of trade unions to workers
? Workers benefit from collective bargaining power by being able to establish better terms of
labour
? Workers feel a sense of unity and feel represented, increasing morale
? Lesser chance of being discriminated and exploited
? Disadvantages of trade unions to workers
? Workers might get lesser wages or none if they go on strike as the output and profits of the firm
falls and they refuse to pay
? Advantages of trade unions to firms
? Time is saved in negotiating with a union when compared to negotiating with individual workers
? When making changes in work schedules and practises,  a trade union’s cooperative can help
organise workers efficiently
? Mutual respect and good relationships between unions and the firms are good for business
morale and increases productivity
? Disadvantages of trade unions to firms
? Decisions making may be long as there will be need of lengthy discussion with trade unions in
major business decisions
? Trade unions may make demands that the firm may not be able to meet, they will have to
choose between profitability and workers interest
? Higher wages bargained by trade unions will reduce the firm's profitability
? Businesses will have high costs and low output if unions organise agitations. Their revenue and
profits will go down and they will enter a loss. They may also lose a lot of customers to
competing firms
? Advantages of trade unions to economy
? Ensures that the labour force in the economy is not exploited and that their interests are being
represented
? Disadvantages of trade unions to economy
? Can negatively impact total output of the economy
? Firms may decide to subtitle labour for capital if they can’t meet trade unions expensive
demands and so unemployment may rise
? Higher wages resulting from trade union activity can make the nation’s exports expensive and
thus less competitive in the international market