Semester 2

Chapter 16 – Money and Banking

3.1 Money and Finance
Why do we need banking? To support specialization and exchange.

Barter involves exchanging goods and services without money (product for
product)
Problems with barter are:
● Fixing a rate of exchange – How to agree the values of each goods and service?
➔ E.g: How many apples for one cow?
● Finding someone to swap with (there must be a double coincidence of
wants).
● Trying to save (In the olden days, it is HARD to save non-durable foods =
expired foods)

The functions of money (To overcome the problem of barter):

1. Medium of exchange (form of payment – used to BUY and SELL things)
2. A good store of value (money can be stored for a period of time)
3. A measure of value / unit of account (allows to place a value for a product)
➔ E.g: Price of milk / eggs / etc (values can be added or compared)
4. A means of deferred payment (An AGREED VALUE of money for future
payments / receipts)
➔ E.g: Payment for electricity / telephone (pay LATER)

A good money must be:

1. Acceptable to others in payment for goods and services.
2. Durable so that it is not worn down or damaged easily through frequent use.
3. Portable so that it is easy to carry around.
4. Divisible (can give a change) into smaller units and values.
5. Scarce, otherwise if it is freely available it will be of little or no value to others.
★ Bank deposits are ‘near money’ (easily converted into cash) because they can
be withdrawn to provide cash to make payments reasonably quickly
➔ Near money: Cheques, Bank deposits, Debit cards & Credit cards.

1. Financial assets: liquid assets or near money (easily converted into cash)
2. Physical assets: jewelry or valuable antiques (difficult to sell and convert to cash)

The banking system

Banks are financial intermediaries: bring together savers and borrowers
(Customers that want to save their money with customers who want to borrow it)

1. Savers & Depositors save and

deposit the money
2. Banks act as intermediaries
3. Lend money to households and
businesses
4. Got an interest

The price of money is the interest rate. Have to pay an interest to borrow money.

Types of Bank
● Commercial banks financial institution which performs the functions of
helping customers make and receive payments and also giving loans for
investment with the aim of earning profit
 ● Credit unions cooperative, non-for-profit organization, owned by and for its
members
● Mutual societies saving and loans associations / building societies in some
countries
● Investment banks specialize in helping large business organizations raise
finance to fund their operations and expansion
● Islamic bank based on principles of Islamic Sharia law, which forbids
interest changes and payments (doesn’t have to pay interest if we borrow
money instead pay a return on their services)
● Central bank (Government’s bank) isn’t for people to use

Types of ACCOUNT
1. Deposit / Saving account – A long term saving; Locking the money in the
bank for a period of time until your contract expires
2. Current account / Checking account – Where people could be receiving an
interest if there is an amount of money in it, but it doesn’t get an interest
because people are using the money (withdrawing)

Types of LOAN (Borrowing: Paying interest)

1. Overdraft (when you spend more money from your bank account than you
have available)
2. Personal loan (For personal reasons and can dispose the money however
they want)
3. Commercial loan (To start a business)
4. Mortgage (To buy property)

Methods of PAYMENT
1. Cash (Immediate payment but have to have self-control and responsibility)
2. Direct debit (Automatically deduct to pay subscriptions or electric bills)
3. Cheque
 4. Debit card (Similar to cash but electronically – Immediate payment &
Convenient)
5. Credit card (Hutang baru bayar) – If people don’t pay off dues on time, they
have to pay a high interest (Negative debt)

The role of a CENTRAL BANK:

To maintain the stability of the national currency and the money supply
1. The Banker’s bank
2. The Government’s bank
➔ E.g: A bank is short of money -> Central bank lend money

Functions of central bank:

1. Issues notes and coins (Printing)

2. Manages the national debt

3. Manages payments to and from the government

4. Supervises the banking system, regulating the conduct of bank, holding their
deposits and transferring funds between them

5. The lender of the last resort to the banking system

6. Manages the nation’s gold and foreign currency reserves (Pertukaran mata
uang)

7. Operates the government’s monetary policy

Chapter 17 – Households
➔ In every household there will be a disposable income.
What is disposable income? Amount of income left to spend or save after direct
taxes have been deducted
Consumption
● High disposable income = spend more in total (potential consumer
expenditure)
E.g: People who have 100 to spend will spend more than people who have less
than 100. Your parents give you 50k, then you spend 50k.

Why do older people get more income than younger people?

1. More experienced in business
2. Learn more skills and become more productive
3. Tend to save more money

➔ Younger people tend to spend more for entertainment

➔ People with families spend more on their children or homes
➔ Elderly people spend on their healthcare

What determines how much we spend / Factors affecting Consumer Expenditure

- Disposable income
- Wealth
- Interest rates
- Consumer Confidence (higher = spends more)
- Habits (people have different lifestyles)
- Age (young-middle aged people spend more than elderly)
- Taxes (Indirect taxes like good and services may reduce consumption as it
increase the price of good)
- Gender (Tampons or pads only for woman)
- Household expenditure (Having children = spends more)
- Technology Advancement (E.g: mobil listrik)
- Population trends
What determines how much we borrow?
- Interest rates
- Wealth
- Consumer confidence
- Availability of credit

Chapter 18 – Workers
Why do people work? To get facilities (E.g a car), health or other insurance, money, etc.

Factors affecting an individual choice of occupation:

1. Wage factors – Factors that determine an employee's salary or wages, such
as their job title, skills, experience, and education.
➔ E.g: a person with a higher level of education, more experience, and
specialized skills in a particular field will typically earn a higher wage
than someone with less education, less experience, and fewer skills.
1. Overtime pay (Workers can get tired)
2. Bonuses (Workers that work well and is productive)
3. Commission (Selling items / houses & taking an agree percentage)
4. Wages

➔ Education: A college graduate may be paid more than a high school graduate.
➔ Experience: A seasoned salesperson may be paid more than a new hire.
➔ Skills: A certified nurse may be paid more than a nursing assistant.
➔ Job performance: An employee who consistently meets or exceeds sales targets
may be paid more than one who does not.

The supply of labor to an occupation depends on the wage rate for the job:
● Time rate per hour worked per employee
➔ E.g: A tutor
● Piece rate per unit produced per employee
 ➔ E.g: Setiap barang yang di buat
● A fixed annual rate/salary will be divided into 12 equal monthly payments (Gaji tetap)
➔ E.g: Teachers (with upah bulanan)
● Performance-related pay: commission on sales, annual bonuses, etc
(Semakin banyak sales, income naik)
➔ E.g: Salesman

2. Non-Wage factors – Factors that do not directly affect an employee's salary

➔ E.g: an employee may choose to take a lower salary in exchange for
better benefits such as a health insurance plan or a retirement plan.
1. Job satisfaction – Prefer to work for a company with a positive culture and
values ​that align with their own (E.g: Underpaid teachers are happy to teach
students and is satisfied to give them knowledge)
2. Working hours – Less working hours
3. Working conditions
4. Fringe benefits – (E.g: Extra discount of a membership, health insurance,
retirement plans, and paid time off)
5. Job security – Prefer a stable job with long term prospects (Don't have to
worry about being fired)
6. Career prospects – Accepting the job (E.g: As a teacher, won’t get promotion)
7. Size of the firm – Large firms usually pay and offer more (Low risk of shutting
down)
8. Location – Close to your living area / ability work from home
9. Pension
10. Holidays
11. Type of work – manual (usually better paid) or non-manual job

★ The supply of labor to an occupation refers to the number of people willing

and able to work in that occupation (Number of workers willing to work
increases as the wage rate increases)
 ★ The demand for labor in an occupation refers to the number of job openings
and the need for workers in that occupation (Hire more workers as the wage
rate is lower)

Tip: Workers supply labor services to firms, and firms demand workers to produce
goods and services.

What causes the supply of labor to increase? (more people are willing and able to
work)
1. Increase in population: More potential workers
2. Increase in education and training: More people are getting the education
and training needed to work in certain occupations, which can increase the
supply of labor.
3. Increase in immigration: An influx of immigrants can also increase the supply
of labor in certain occupations.
4. Increase in net advantages

What causes the supply of labor to fall?

1. A fall in population
2. A fall in education and training
3. A fall in immigration
4. A reduction in net advantages

What causes the demand for labor in an occupation to increase?

1. Increase in consumer demand
2. An increase in labor productivity
3. An increase in the cost of equipment (Capital) – Machine becomes really
expensive
4. A fall in non-wage employment cost (E.g: pension contributions, health and
safety costs)
What causes the demand for labor in an occupation fall? (fewer job openings)
1. Economic downturn: Businesses cut back on hiring.
2. Automation and technology: Advances in technology and automation can
replace human workers.
3. A fall in labor productivity.
4. A fall in consumer demand.
5. A rise in non-wage employment cost

★ The supply and demand for labor in an occupation is constantly changing

and can be affected by a variety of factors.

What explains wage differentials? Some workers are paid more than others
because they:

● Different abilities and qualifications: are more highly skilled than others and
are much in demand by employers
● Dirty jobs and work unsociable hours
● Job satisfaction
● Lack of information about jobs and wages: have more information than other
workers about where the best paid jobs are
● Labour immobility: move location and/or change their occupation to increase
their pay
● Fringe benefits: Some jobs may offer lower wages than others because they
offer more perks instead.

Why do earnings differ between people doing the same jobs?

1. Length of service: Masa kerja (The employee with more experience may have
earned a higher salary)
 2. Local pay agreements: (One city may have a higher cost of living and
therefore, the employee in that city may earn a higher salary)
3. Non-monetary rewards differ: Getting a bonus (An employee may receive
additional benefits such as a flexible work schedule or a work-from-home
option, which may affect their overall earnings)
4. Discrimination: (An employee may be paid a lower salary due to their race,
gender, or other discriminatory factors)

Minimum wage Legislation

Minimum wage laws exist to raise the wages of the lowest-paid workers.
➔ E.g: Government made a law of a minimum wage of a chef is 6 juta per
month and the company doesn’t agree -> demand labor fall, too much
supply

Chapter 19 – The role of trade unions

Trade or Labour union: aims to promote and protect the interests of their workers
to improve their wages and working conditions.

The trade union movement worldwide has helped to:

• fight and bring to an end child labor in many countries
• improve workers' safety
• increase wages for both union and non-unionized workers
• improve education and other benefits for many poor and working class families

The aims of unions:

➔ Negotiating improvements in wages and other non-wage benefits.
➔ Defending employees’ rights and jobs
➔ Improving working conditions (securing better hours of work and better
health and safety policies)
➔ Improving pay and other benefits (holiday entitlement, sick pay and pensions)
 ➔ Encouraging firms to increase workers’ participation in business decision
making (Got a say at work = increase productivity)
➔ Supporting members who have been dismissed (PECAT) or who are taking
industrial action
➔ Developing the skills of union members (By providing training and education
courses)
➔ Providing social and recreational amenities for their members (E.g: A
country club providing golf courses, tennis courts, swimming pools, and
dining facilities for its members)
➔ Improving employment legislation (E.g: Increasing the minimum wage &
strengthening anti-discrimination laws )
Trade unions may represent:
● Craft unions (Employees with the same skills or in the same occupation)
➔ E.g. Union of Operators and Technicians in Cinema and Video Projection (Spain)
● Non-manual unions (Workers with stressful and prestigious jobs)
➔ E.g. German Police Union
● General unions (Accept anyone)
➔ E.g. Australian Workers Union
● Industrial unions (Workers from the same industry)
➔ E.g. National Union of Mineworkers in South Africa (NUM)

Collective bargaining (Doing negotiations)

➔ Takes place between an employer and trade unions
➔ Goal: to reach agreements that establish fair wages, working hours, and
benefits for the employees, bonuses, job security, unemployment pay, etc
Trade unions may seek to improve the wages and other working conditions of their
members if:
● Price inflation is high and rising
● Other groups of workers have received pay rises
● New machinery or working practices have been introduced in the workplace
● The productivity of their members has increased
● The profits of the employing organization have increased

Union bargaining strength

The ability of a union to negotiate favorable terms and conditions for its members.

Strength can be influenced by:

● The size and unity of the union membership.
● The level of support from the community and political leaders.
● The economic conditions of the industry.

★ Strong unions: Secure better wages, benefits, and working conditions.

★ Weaker unions: Struggle to achieve goals.

What if negotiations fail?

Trade union members make take industrial action to increase their bargaining
strength
➔ E.g: The strongest and powerful action: Strike – Workers refuse to work and
may also protest outside their workplace to stop deliveries and prevent
non-unionized workers from entering the firm
★ Official action has the backing of their union, and other unions may also take
action in support.
★ Unofficial action: that workers taking the industrial action do not have the
support for their union.
The advantages of trade union activity:
• For workers
● TU represent their views and flights to maintain their jobs and working
conditions
● Protect their wages and other benefits
● Prevent discrimination and exploitation at work
● Provide training and educational courses

• For firms including public sector organizations

● Protect and maintain the skill levels of their members
● Provide a single point of contract (having a single body for negotiating terms
is simpler than dealing with workers individually)
● Help to improve labor productivity

• For government
● The TU movement in an economy provides a single point of contract and
source of information to inform and discuss economic issues and
government policy measures including employment laws
● Help to reduce inequality in society by raising the wages of low paid workers
● Raise productivity within firms, help to boost output and economic growth
● Improving and maintaining workforce skills increases the mobility of labor in
the economy

The disadvantages of trade union activity

• For workers
● Belonging to a trade union requires the payment of weekly/monthly
membership fees
● Individual workers who are more productive and have more experience and
skill than their workplace colleagues will be unable to negotiate higher
wages separately with their employers (Because TU divide equally)
 ● In some workplaces with closed shops/single union agreements, employees
have no other choice but to join a union and o follow union rules

• For firms
● Wage and other working conditions may be better, more productive and
working hours lower
● Will have less control over who they can hire and dismiss
● They are normally required to collect trade union membership fees from the
pay of their workers and then pay over these fees to their unions
● Trade unions may organize workers to participate in disruptive industrial
actions including over jobs, workers' rights, pay and working conditions

• For government
● The demand for labor may be lower and unemployment higher if trade
unions push up wages
● Trade unions may contribute to raising wage inflation
● Industrial disputes and actions can result in lost production and may reduce
economic growth