Exam Success in Economics for Cambridge IGCSE® and O Level
These notes are everything you need to know for Unit 3 IGCSE Economics (0455). These notes include details about banks, households, workers, trade unions and firms. These notes include definitions, graphs and all the details you need for the exam.
To make these notes, I used:
- Essential Economics...
IGCSE Economics (0455) Unit 6 - International trade and globalisation
IGCSE Economics (0455) Unit 1 - The basic economic problem
IGCSE Economics (0455) Unit 4 - Government and the macroeconomy
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IGCSE Economics 0455
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Unit 3 - Microeconomic decision-makers: banks, households,
workers, trade unions, firms
Money and Banking
Money
Money: anything that is widely/ generally accepted and can be traded for goods and services.
(forms: notes, coins,...)
The functions of money:
● Medium of exchange: a way to make payment for a product since it is generally
accepted
● Unit of account (a measure of value): the value/price of a product can be measured by
how many units of currency it is worth
● Store of value: can be saved because it keeps its value (depending on the countries
inflation), can be saved to be used in the future
● Standard of deferred payments: borrowers can use money now and pay at a later date,
and payments can be spread over time. This encourages the use of credit and expansion
of trade and therefore the economic development of the country
Characteristics of money:
● Acceptability: the value of the currency has to be widely accepted by the public
● Portability: It has to be easy to carry around for ease of use (effective)
● Scare: If it isn’t hard to get, it would be worthless
● Recognisability: It has to be easily recognised to retain confidence
● Stability of value: relatively stable over a period of time to retain confidence
● Divisibility: Must be able to divide into smaller pieces for ease of use
● Durability: Relatively hard-wearing over a long period of time
Commercial Banks
Commercial bank: a bank that provides a variety of services to households and businesses. They
act as a financial intermediary, linking savers and borrowers.
Function of a commercial bank:
● Provision of current accounts (an everyday account into which money can be paid and
out of which payment can be made): Often a debit card attached to it
● Provision of savings accounts (an account that enables customers to save over a period
of time and receive interest payments to boost the level of saving)
, ● Lending: loans, overdrafts (where customers can spend more than is in the account) and
mortgage (borrowing money normally to buy a property, over a relatively long period)
● A means of making payments: Cheque, banker’s draft, standing order or direct debit.
● Provision of foreign currency: can obtain a foreign currency which enables customers to
buy goods and services when abroad
● Working with the government: the government benefits from commercial banks
because they provide a means of making payments (with the credit card/current
accounts). They work closely with the commercial banks to make sure the supply of
money is in line with the level of economic activity.
Central Banks
Central bank: responsible for regulating and supervising the banking and financial system in the
country.
Function of the central bank:
● Establishment of financial rules and regulations
● Issues notes and coins: establishes legal tender (a form of payment that is legally
recognised in settling debt)
● Sets interest rates (the price paid for borrowing money and the price received for
lending money): will affect how much money is borrowed. If the central bank wants a lot
of people to borrow, they will set low-interest rates
● Lender of last resort: Helps commercial banks if they need money
● Supervises monetary policy (a way of influencing an economy through changes in the
price and quantity of money): can supervise the price of money by setting interest rates
and controlling how much money there is in an economy at a given time
● Banker of the government: revenue and expenditure of the government will be carried
out in their accounts they have in the central bank
● Banker for the commercial banks: each commercial bank will have an account in the
central bank where their debts with each other will be carried out
● Participation in international financial meetings: representatives take part in these
meetings
● Control on lending: Central banks can control the amount of lending in an economy.
● Management of international debt: Every country borrows money over a period of
time, the amount of debt is called national debt.
Households
Influences on spending, saving and borrowing
, Spending: exchange of money for goods/ consumption of expenditure, the influence include:
● Essential items are needs, non-essential goods are wants.
● Main influence is income,
Saving: money put aside to finance a purchase in the future, the influences include:
● The rate of interest that the financial institutions pay on money deposited in saving
accounts. The proportion of the income that is saved is called savings ratio
Borrowing: an individual receiving money from another individual or organization with the
intention of paying it back with additional interest, the influence include:
● The important motive of borrowing is the ability to spend beyond your income in order
to meet your needs/wants.
● The rate of interest, people are more inclined to borrow when the rate of interest is low.
● The confidence of the borrower to pay back the money borrowed
High-income households: Unlikely to spend all their income, able to save a lot, unlikely will
need to borrow money
Middle-income households: Likely to spend most of their income, may be able to save a little,
probably will need to borrow money to buy consumer durables (house, car,...)
Low-income households: likely to spend all their income though it may not cover all their
needs, unlikely to be able to save any of their income, will certainly need to borrow money to
be able to meet their needs but may find it difficult to borrow because lenders are uncertain
whether they will be repaid.
Income and expenditure patterns
As countries become more industrialized, there will likely be an increase in saving and spending
as income rises. Borrowing money might also increase if interest rates are low, and people
remain confident for the future
Workers
Factors affecting occupation choice
Wage factors:
● Basic pay: money received by the employee before any additional
payments/deductions. Wage or Salary
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