Economics Revision Notes (+ guide)
Ways to revise for econ (guide):
- Flashcards for term definitions
- Loads of detailed and annotated handwritten notes
- Stuff Julia gave in yr9
- Find and do past papers
The actual revision notes:
Section 3 – Microeconomic Decision Makers
16. Money and Banking
Money is any commodity that can be used as a medium of exchange for the purchase of
goods and services
Money can take different forms; modern forms of money include:
o Cash – banknotes and coins as a physical form; cash is convenient for many
transactions, it is inconvenient and risky to use for large transactions
o Bank deposits – money reserves placed in commercial bank accounts, commercial
bank money is in electronic form, rather than physical
o Central bank reserves – consist of the money held by the central bank and used by
commercial banks to make payments between themselves, an electronic form
Money as 4 key functions:
o Acts as a medium of exchange – functions as a way to conduct trade, widely
recognised and accepted as means of payment for goods and services
o The measure of value (or unit of count) – measures the market value of different
goods and service
o Store of value – can be stored and used at some time in the future; gives firms and
households flexibility in the timing of their sales and their purchases, thus removes
the urgency to trade straightaway
o Standard of deferred payment – money is used as the standard for the future
(deferred) payments of debt; used as the standard to pay off debts
Characteristics of money:
o Durability – should be fairly long-lasting, yet easily replaced if become worn
o Acceptability – needs to be widely recognised and accepted as a medium of
payment for goods and services; legal tender is the official money of a country.
Other forms might also be accepted, gold is universally accepted as a form of money
, o Divisibility – needs to divide easily to buy a range of cheap and expensive products
o Uniformity – to be easily recognisable, it must be uniform
o Scarcity – money must be limited in supply in order to keep its value
o Portability – must be conveniently portable
Bartering is the act of swapping items in exchange for other items through a process of
bargaining and negotiation, due to the absence of money in the economy
The key problem with the barter system is the need for a double coincidence of want – both
people engaged in a transaction must both want what the other person is offering
Bartering also has a problem with divisibility – half a chicken or a cow’s head might not
always be useful
Bartering system has problems of portability
The central bank of a country is the monetary authority that oversees and manages the
economy’s money supply and banking system
Central banks are responsible for overseeing the monetary policies, nations entire monetary
supply and the manipulation of interest rate to affect the economy of their respective
countries
4 key functions of central banks:
o The sole issue of banknotes and coins – it is the only authority that can print
banknotes and mint coins; this helps to bring uniformity and improves public
confidence in the country’s monetary system (HK is an exception in this case)
o Acts as governments bank – operates as a banker to the government, performing
same functions as a commercial bank; it maintains the bank accounts of the central
government, manages public sector debt and represents the government in
international financial markets (such as a foreign exchange); those interventions
help to stabilise the external value of a nation’s currency
o The bankers' bank – acts as a bank for other banks in the country; it oversees the
cash reserves of commercial banks, so all banks must have their accounts with the
central bank, enabling the central monetary authority easily to manage the claims
made by banks against each other; this allows the more efficient function of
commercial banks and allows the central bank to have a better overview of the
liquidity position (the ability to convert assets into cash) of the country’s commercial
banks
o The lender of last resort – given that the authorities require all commercial banks to
keep a certain percentage of their cash balances as deposits with the central bank,
these cash reserves can be used by the country's banking system during financial
emergencies; this function helps to build public confidence in the country’s banking
system, as it helps to ensure the commercial bank doesn’t collapse, protects jobs
and safeguards the nation’s banking system and economic welfare
A commercial bank is a retail bank that provides financial services to its customers (e.g.
savings, bank loans and mortgages)
All commercial banks are responsible for maintaining the deposits of their account holders
Ways to revise for econ (guide):
- Flashcards for term definitions
- Loads of detailed and annotated handwritten notes
- Stuff Julia gave in yr9
- Find and do past papers
The actual revision notes:
Section 3 – Microeconomic Decision Makers
16. Money and Banking
Money is any commodity that can be used as a medium of exchange for the purchase of
goods and services
Money can take different forms; modern forms of money include:
o Cash – banknotes and coins as a physical form; cash is convenient for many
transactions, it is inconvenient and risky to use for large transactions
o Bank deposits – money reserves placed in commercial bank accounts, commercial
bank money is in electronic form, rather than physical
o Central bank reserves – consist of the money held by the central bank and used by
commercial banks to make payments between themselves, an electronic form
Money as 4 key functions:
o Acts as a medium of exchange – functions as a way to conduct trade, widely
recognised and accepted as means of payment for goods and services
o The measure of value (or unit of count) – measures the market value of different
goods and service
o Store of value – can be stored and used at some time in the future; gives firms and
households flexibility in the timing of their sales and their purchases, thus removes
the urgency to trade straightaway
o Standard of deferred payment – money is used as the standard for the future
(deferred) payments of debt; used as the standard to pay off debts
Characteristics of money:
o Durability – should be fairly long-lasting, yet easily replaced if become worn
o Acceptability – needs to be widely recognised and accepted as a medium of
payment for goods and services; legal tender is the official money of a country.
Other forms might also be accepted, gold is universally accepted as a form of money
, o Divisibility – needs to divide easily to buy a range of cheap and expensive products
o Uniformity – to be easily recognisable, it must be uniform
o Scarcity – money must be limited in supply in order to keep its value
o Portability – must be conveniently portable
Bartering is the act of swapping items in exchange for other items through a process of
bargaining and negotiation, due to the absence of money in the economy
The key problem with the barter system is the need for a double coincidence of want – both
people engaged in a transaction must both want what the other person is offering
Bartering also has a problem with divisibility – half a chicken or a cow’s head might not
always be useful
Bartering system has problems of portability
The central bank of a country is the monetary authority that oversees and manages the
economy’s money supply and banking system
Central banks are responsible for overseeing the monetary policies, nations entire monetary
supply and the manipulation of interest rate to affect the economy of their respective
countries
4 key functions of central banks:
o The sole issue of banknotes and coins – it is the only authority that can print
banknotes and mint coins; this helps to bring uniformity and improves public
confidence in the country’s monetary system (HK is an exception in this case)
o Acts as governments bank – operates as a banker to the government, performing
same functions as a commercial bank; it maintains the bank accounts of the central
government, manages public sector debt and represents the government in
international financial markets (such as a foreign exchange); those interventions
help to stabilise the external value of a nation’s currency
o The bankers' bank – acts as a bank for other banks in the country; it oversees the
cash reserves of commercial banks, so all banks must have their accounts with the
central bank, enabling the central monetary authority easily to manage the claims
made by banks against each other; this allows the more efficient function of
commercial banks and allows the central bank to have a better overview of the
liquidity position (the ability to convert assets into cash) of the country’s commercial
banks
o The lender of last resort – given that the authorities require all commercial banks to
keep a certain percentage of their cash balances as deposits with the central bank,
these cash reserves can be used by the country's banking system during financial
emergencies; this function helps to build public confidence in the country’s banking
system, as it helps to ensure the commercial bank doesn’t collapse, protects jobs
and safeguards the nation’s banking system and economic welfare
A commercial bank is a retail bank that provides financial services to its customers (e.g.
savings, bank loans and mortgages)
All commercial banks are responsible for maintaining the deposits of their account holders
