Economics Unit 3: The Monetary Sector

The Monetary Sector

• Definition of Money: Anything generally accepted in exchange for goods and services.
• Barter Economy: Direct exchange of goods; requires a double coincidence of wants, making it time-consuming and inefficient for modern economies.

Requirements of Money

• General Acceptability: Must be desired and accepted by all as a medium of exchange.
• Durability: Should not wear out easily due to constant handling.
• Manageability: Needs to be portable relative to its value.
• Homogeneity and Divisibility: Various denominations should be uniform and divisible into smaller units.
• Recognisability: Easily identifiable and distinguishable from other materials.
• Value: Limited supply enhances scarcity and value; must maintain fairly constant value to avoid inflation losses.

Functions of Money

• Medium of Exchange: Widely accepted for goods and services transactions.
• Unit of Account: Used to state prices, facilitating comparison and total value calculations.
• Store of Value: Common means of holding wealth; other forms include gold, stocks, and real estate.
• Standard of Deferred Payment: Trust in stable value for credit transactions and deferred payments.

Types of Money

• Cash: Physical notes and coins used in transactions.
• Demand Deposits: Money in bank accounts that can be accessed via checks or electronic methods.
• Payment Methods:
  • Debit Cards: Transfer money electronically; enable ATM withdrawals.
  • Credit Cards: Not money; represent credit available to buyers, requiring repayment later.
  • Cheques: Instruments transferring money between accounts; not actual currency.

Digital Finance

• Definition: A broad range of financial services accessed and delivered digitally, including payments, credit, savings, remittances, and insurance.
• Advantages: No physical barriers, lower costs, faster transactions, and integration into formal financial systems.
• Risks: Potential for fraud, security, and confidentiality issues.

Young People and Digital Finance

• Vulnerability to Fraud: Young people, despite being digital natives, are more prone to online fraud risks such as identity theft and scams.