Summary
Summary Economics 144 - The Economy CORE unit 10
- Course
- Institution
- Book
Detailed summary based on unit 10 of The Economy CORE textbook. Analysis includes in-depth explanation using graphs.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Samenvatting The Economy - Economics (ECONOM01)
-
Summary microeconomics weeks 1-8
-
Summary of lecture notes and textbook
1 review
By: janugous02 • 3 year ago
Seller
Follow
LaurenMcJannet
Reviews received
Content preview
UNIT 10 – BANKS, MONEY AND THE CREDIT MARKET§ Markets for goods and services allow parties to interact in mutually beneficial
ways (units 6-9)
§ People can rearrange the timing of their spending by borrowing, lending,
investing and saving
§ Principal-agent relationship of borrowing and lending – lenders often require
borrowers to contribute some of their own funds (lack of enforceable contract)
§ In most markets, money is the medium of exchange (bank notes, bank deposits)
§ The role of commercial banks and the central bank in the economy
§ Banks are profit-maximizing firms that create money in the form of bank deposits
in the process of supplying credit
§ Nation’s central bank creates legal tender and lends to banks at its chosen policy
interest rate
10.1 MONEY AND WEALTH
Money
• Money = a medium of exchange used to purchase goods or services
Þ Bank notes, bank deposits, cheques etc. (accepted payment)
• Money allows purchasing power to be transferred among people
• For money to do its work, everyone else must trust that others will accept your
money as payment – government and banks usually provide this trust
Income and wealth
• Wealth = stock of things owned or value of that stock
Þ Buildings + land + machinery + capital goods + financial assets – debt owed
+ debt owed to you
Þ The accumulation of past and current savings
• Human capital = wealth and immaterial aspects like health, skills, ability to earn
an income (broader definition than material wealth)
• Income = the amount of money one receives over some period of time (flow)
Þ From market earnings, investments, government
Þ i.e. interest, profit, rent, labour earnings and other payments less taxes paid
Þ after-tax income = disposable income
Important concepts
• Depreciation = reduction in the value of a stock of wealth over time that occurs
through use (wear and tear) or obsolescence
• Net income = the maximum amount that one could consumer without running
down wealth
Þ Net income = gross income – depreciation
,• Earnings = wages, salaries and other income from labour
• Consumption = expenditure on consumer goods (short-lived and long-
lived/durable goods or services)
• Savings = income that is not consumed, when consumption expenditure is less
than net income and wealth increases
• Investment = expenditure on newly produced capital goods e.g. machinery or
buildings
• Saving serves as financing for investments
• Only the corporate sector has really been saving in SA
• SA is highly dependent on foreign investment
10.2 BORROWING: BRINGING CONSUMPTION FORWARD IN TIME
Consumption over time
• There is a trade-off between consuming goods now and later
• The opportunity cost of having more goods now, is having fewer goods later
Borrowing and lending
• Borrowing and lending allows us to reorganize over time our capacity to buy
goods and services
• Borrowing allows us to buy more now, at a cost of buying less in future
• Interest rate (r) = the price of bringing some buying power forward in time
!"#$%&"'(
Þ Interest rate = #!)'*)#$+
-1
• Repayment = principal + interest
• (1 + r) = tradeoff between current and future consumption (MRT) *unit 3
, Repayment = principal + interest
= 91 + 91r
= 91(1 + r)
= $100
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LaurenMcJannet. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.37. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53249 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now