Function of central bank IGCSE Notes

Central Banks

Central Banks are charged with regulating the size of a nation’s money supply, the availability and cost of credit, and the foreign-exchange value of its currency. Regulation of the availability and cost of credit may be designed to influence the distribution of credit among competing uses. The principal objectives of a modern central bank in carrying out these functions are to maintain monetary and credit conditions conducive to a high level of employment and production, a reasonably stable level of domestic prices, and an adequate level of international reserves.

Function of a Central Bank

A central bank usually carries out the following responsibilities:

• Implementation of monetary policy.
• Controls the nation's entire money supply.
• The Government's banker and the bankers' bank ("Lender of Last Resort").
• Manages the country's foreign exchange and gold reserves and the Government's stock register;
• Regulation and supervision of the banking industry
• Setting the official interest rates- used to manage both inflation and the country's exchange rate - and ensuring that this rate takes effect via a variety of policy mechanisms

For more information about the functions of various Central Banks click on the links below:

Bank of Indonesia
Central Bank of Malta
Central Bank of Yeman
Bank of England
Bank of Japan
To get an elaborate list of websites of Central bank of different countries click here.

Watch a Video - How Central Bank controls money supply

Qualities of money

What is money?

Money is anything that is generally accepted as payment for goods and services and repayment of debts.

Functions of Money

A medium of exchange

Money overcomes the problem of needing a double coincidence of wants. It can be used to exchange and is therefore a comparative object, a tertium comparationis ("a third comparative unit").

A unit of account

Money acts as a measuring unit for value. Thus different commodities can be expressed in terms of money uniformly. This simplifies the comparison of the value of two products or services.

A store of value

Money can be used to store value. Unlike barter system where the commodities could not be saved over time, money can be stored as it does not lose value overtime.

A standard of deferred payment

Money can be used to pay over time for commodities. Goods and services can be paid for in instalments over a period of time e.g hire purchase. This was much more difficult and complicated in the barter system.

Watch a Video - Problems of Barter System

Qualities of Good Money

Following are the qualities of good money:

General acceptance

The essential quality of good money is that it should be acceptable to all, without any hesitation in the exchange for goods and services.

Portability

It is also an important quality of good money that is should be easily transferable from one place to another for doing business and making payment. The paper money is easier to carry because it has minimum possible wait than metallic money.

Storability

Money should be storable and it should not be depreciate with time. If the money used is perishable it will lose its value in few days. Paper money has this quality of storability.

Divisibility

Good money is that which could be divided into small units without losing any value.

Durability

Money should be durable. It should not lose its value with the passage of time. The gold and silver coins do not wear out quickly and quality of money remains the same.

Economy

It is important quality of good money that it should be made economically. If there is heavy cost on issuing more money that is not good money. Good money is that has low cost and more supply. Paper money has this quality of economy.

IGCSE ECONOMICS NOTE-What is a Trade Union?

What is a Trade Union?

A trade union or labour union is an organization of workers who have banded together to achieve common goals in key areas such as wages, hours, and working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies.

A rally of the trade union UNISON in Oxford during a strike Copyright © 2006 Kaihsu Tai

Find out more about Trade Unions in your country.

Click here to view an elaborate list of trade unions in different countries.

Read about Trade Union Congress (TUC) in UK

Types of Industrial Actions

• Strike: when employees refuse to work
• Picketing: When employees stand outside the workplace and prevent the smooth functioning of the firm. E.g. they may stop the movement of Lorries in and out of factory.
• Work to Rule: It is when workers purposely follow all the rules in order to delay the progress of work.
• Go slow: It is when the employees work at a very slow pace.
• Non-cooperation: It involves workers refusing to follow a new procedure or rule.
• Overtime ban: It is when the employees refuse to work overtime or for additional hours of work apart from their normal working hours.

• Why do workers join trade unions?

  Workers might join a trade union because
  • They believe that there is strength in number and they will be listened to when they in a group.
  • To negotiate a better pay, more holidays and less hours of work.
  • To pressurise the employer to provide them with a healthier and safer working environment.
  • Improved benefits for retrenched workers
  • To get the benefits of advice, financial support and welfare activities carried out by Trade Unions.
  • Many workers may also join a trade union because there is a closed shop policy.

  Closed Shop

  It is where all employees must be a member of the same trade union.

  Single Union agreement

  It is an agreement between the management and workers, where the management deals with only one trade union and no other.

  Collective bargaining

  It means the negotiations between one or more trade unions and one or more employers on pay and conditions of employment.

  Productivity agreement

  It is an agreement between the management and workers whereby the management agrees to increase the benefits for workers in return for an increase in productivity.

• Why do workers join trade unions?

  Workers might join a trade union because
  • They believe that there is strength in number and they will be listened to when they in a group.
  • To negotiate a better pay, more holidays and less hours of work.
  • To pressurise the employer to provide them with a healthier and safer working environment.
  • Improved benefits for retrenched workers
  • To get the benefits of advice, financial support and welfare activities carried out by Trade Unions.
  • Many workers may also join a trade union because there is a closed shop policy.

  Closed Shop

  It is where all employees must be a member of the same trade union.

  Single Union agreement

  It is an agreement between the management and workers, where the management deals with only one trade union and no other.

  Collective bargaining

  It means the negotiations between one or more trade unions and one or more employers on pay and conditions of employment.

  Productivity agreement

  
  
  It is an agreement between the management and workers whereby the management agrees to increase the benefits for workers in return for an increase in productivity.

IGCSE ECONOMICS NOTE-Why do workers join trade unions?

Why do workers join trade unions?

Workers might join a trade union because

• They believe that there is strength in number and they will be listened to when they in a group.
• To negotiate a better pay, more holidays and less hours of work.
• To pressurise the employer to provide them with a healthier and safer working environment.
• Improved benefits for retrenched workers
• To get the benefits of advice, financial support and welfare activities carried out by Trade Unions.
• Many workers may also join a trade union because there is a closed shop policy.

Closed Shop

It is where all employees must be a member of the same trade union.

Single Union agreement

It is an agreement between the management and workers, where the management deals with only one trade union and no other.

Collective bargaining

It means the negotiations between one or more trade unions and one or more employers on pay and conditions of employment.

Productivity agreement

It is an agreement between the management and workers whereby the management agrees to increase the benefits for workers in return for an increase in productivity.

IGCSE AND GCEO LEVEL Notes- Monetary policy

Monetary Policy

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls

1. the supply of money,
2. Availability of money, and
3. Cost of money or rate of interest,

in order to attain growth and stability of the economy.

Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy.

An expansionary policy increases the total supply of money in the economy and is traditionally used to combat unemployment in a recession by lowering interest rates.

Contractionary policy decreases the total money supply and involves raising interest rates in order to combat inflation.

It is argued that an increase in the money supply causes an increase in the rate of inflation. Maintaining a low and stable inflation is one of the main macroeconomic objectives of the Government. Government does so by controlling the supply of money to the economy. This policy is known as monetary policy.

Monetary policy is concerned with controlling the supply of money and the interest rates in the economy. The government cannot control both the supply of money and interest rates at the same time.

Monetary policy in any country is usually controlled by the Central Bank of that country. The Central bank alters the interest rates in the economy after assessing the inflationary pressures in the market.

Evaluation of Monetary Policy

Monetary policy is considered to be more successful during inflationary times because an increase in interest rates reduces the borrowings and thus stabilises the prices. Whereas, during deflation, Monetary policy may not be as effective. During deflation or recession, there is uncertainty in the market which discourages entrepreneurs and producers to take risk.

Useful links

• Bank of England -Monetary policy framework
• Download Monopoly Policy simulation game
• US Monetary Policy – Further Informative notes

Watch a Video

What is Free Trade? IGCSE AND GCEO LEVEL

What is Free Trade?

Free trade is a system of trade policy that allows traders to trade across national boundaries without interference from the respective governments.

Reasons for Free Trade

Domestic Non-availability: A nation trades because it lacks the raw materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.

Cost effectiveness: It is cheaper to buy from other countries rather than producing themselves.

enefits of Trade

Lower prices for consumers: When there is free trade, consumers can free to buy goods from the producer who is willing to sell at the lowest prices. Hence consumers gain from lower prices.

Greater choice for consumers: With free trade, consumers have access to variety of goods and services from different producers across the globe. This means more choice.

Ability of producers to benefit from economies of scale: Producers have access to a larger market thus they can produce more at lower cost and benefit from economies of scale.

Ability to acquire needed resources: Through free trade producers can not only sell in a large market but also gain from purchasing from suppliers across the world.

More efficient allocation of resources: When there is free trade, the most efficient producers get the opportunity to produce due to their cost efficiency. This leads to productive efficiency.

Increased competition: In free trade producers from different regions can compete with each other in terms of price, quality and variety. Increased competition leads to efficient allocation of resources.

Source of foreign exchange: Free trade involves the transaction of goods and services between nations. In order to purchase goods from abroad (imports), we need foreign currency. This is possible through exporting of goods to other countries.

Free Trade diagrams

Watch a Video

Video 2

Professor Friedman clarifies the motives of protectionism and explains why free trade policies benefit the masses.

IGCSE structured notes, Barriers to growth of less developed economies?

Barriers to growth of less developed economies

Rapid population growth neutralises growth in GDP. The ultimate effect is that GDP per capita remains the same or comes down.

Human resources: Lack of training and high level skills makes the workforce less productive.

Lack of natural resources: If the country is lacking in natural resources, growth can be difficult. Moreover, if the country has good natural resources, but they are not managed properly then there will be less development.

Inefficient use of resources: If there is no optimum utilisation of workforce, or if the firms are inefficient due to lack of competition.

Too much dependence on agricultural products: Developed countries which import these products from less developed countries usually pay very low prices for it. Moreover, they further process these products and sell it for higher prices to LDCs.

Poor infrastructure: Lack of infrastructure such as poor transport and communication is another reason which hinders growth for LDCs.