Chapter 3
3.1 Production, Income and Spending
Production generates → Income (for various factors of production) → use for Spending on Production
(fig.3.1)
Stock versus Flow variable → Time dimension difference
Once versus Continues (box 3.1)
3.2 The interdependence between Households and Firms
Figure 3.2 (goods and services) + Figure 3.3 (income and spending)
Households: people who make economic decisions and sells factors of production on the factor market
Firms: employs factors of production and produce goods and services for the goods market
3.3 Introducing the Government Figure 3.4
Government = local + regional + national = Public Sector
Government spending = injection in economy (circular flow)
Taxes = leakage or withdrawal from economy (circular flow)
3.4 Introducing the Foreign Sector Figure 3.5
Export = addition or injection in the economy (circular flow)
Import = leakage or withdrawal in the economy (circular flow)
3.5 Financial Institutions in the circular flow of income and spending Figure 3.6
Examples: Standard Bank, ABSA, FNB, Pension funds, stock exchange
Savings = leakage or withdrawal from the economy (circular flow)
Investments = addition or injection in the economy (circular flow)
3.6 Total Production, Income and Spending: Summary
C = spending (Consumption) by households and consumers
, Chapter 15
15.1 The function of Money
Medium of exchange (intermediary)/ unit of account (measure)/ store of value (deferred payment)
Definition: anything accepted as payment for goods + services + debt
15.2 Different kinds of money
Commodities: problem of uniformity/durability/divisibility/carry→ coins: problem of large transactions → paper
money: problem of fiduciary /credit money (more paper money than gold backing) therefore intrinsic value = 0
with only exchange value → cheque accounts + credit cards (Box 15.1)
15.3 Money in S.A.
M1 = coins + notes + demand deposit (immediately) (bigger than others)
M2 = M1 + short + medium term deposit’s
M3 = M2 + long-term deposit’s
15.4 Financial Intermediaries
Link between surplus units and deficit units
15.5 South African Reserve Bank (Functions)
formulating and implementation of monetary policy
services to government (custodian of foreign exchange reserve)
provision of economical and statistical services
maintaining financial stability (issuer of banknotes + coins, Banker’s bank-cash reserve)
15.6 Supply of money
Banks create demand deposits through deposit + loans – passive
Banks create demand deposits through overdraft facilities – active (Box 15-4)
SARB control supply of money with: Cash reserve requirement to guard against cash withdrawals and
accommodation policy at repo rate.
Other factors that influence money supply: foreign trade (export) and government budget finance and tax
deposit’s
15.7 Demand for money
Table 15.2 → Figure 15.1
15.8 Equilibrium in the money market
3.1 Production, Income and Spending
Production generates → Income (for various factors of production) → use for Spending on Production
(fig.3.1)
Stock versus Flow variable → Time dimension difference
Once versus Continues (box 3.1)
3.2 The interdependence between Households and Firms
Figure 3.2 (goods and services) + Figure 3.3 (income and spending)
Households: people who make economic decisions and sells factors of production on the factor market
Firms: employs factors of production and produce goods and services for the goods market
3.3 Introducing the Government Figure 3.4
Government = local + regional + national = Public Sector
Government spending = injection in economy (circular flow)
Taxes = leakage or withdrawal from economy (circular flow)
3.4 Introducing the Foreign Sector Figure 3.5
Export = addition or injection in the economy (circular flow)
Import = leakage or withdrawal in the economy (circular flow)
3.5 Financial Institutions in the circular flow of income and spending Figure 3.6
Examples: Standard Bank, ABSA, FNB, Pension funds, stock exchange
Savings = leakage or withdrawal from the economy (circular flow)
Investments = addition or injection in the economy (circular flow)
3.6 Total Production, Income and Spending: Summary
C = spending (Consumption) by households and consumers
, Chapter 15
15.1 The function of Money
Medium of exchange (intermediary)/ unit of account (measure)/ store of value (deferred payment)
Definition: anything accepted as payment for goods + services + debt
15.2 Different kinds of money
Commodities: problem of uniformity/durability/divisibility/carry→ coins: problem of large transactions → paper
money: problem of fiduciary /credit money (more paper money than gold backing) therefore intrinsic value = 0
with only exchange value → cheque accounts + credit cards (Box 15.1)
15.3 Money in S.A.
M1 = coins + notes + demand deposit (immediately) (bigger than others)
M2 = M1 + short + medium term deposit’s
M3 = M2 + long-term deposit’s
15.4 Financial Intermediaries
Link between surplus units and deficit units
15.5 South African Reserve Bank (Functions)
formulating and implementation of monetary policy
services to government (custodian of foreign exchange reserve)
provision of economical and statistical services
maintaining financial stability (issuer of banknotes + coins, Banker’s bank-cash reserve)
15.6 Supply of money
Banks create demand deposits through deposit + loans – passive
Banks create demand deposits through overdraft facilities – active (Box 15-4)
SARB control supply of money with: Cash reserve requirement to guard against cash withdrawals and
accommodation policy at repo rate.
Other factors that influence money supply: foreign trade (export) and government budget finance and tax
deposit’s
15.7 Demand for money
Table 15.2 → Figure 15.1
15.8 Equilibrium in the money market
