Tag: ECONOMICS CLASS NOTES PDF

12 FACTORS THAT AFFECT MONEY SUPPLY IN AN ECONOMY

  • Level of economic activity. The higher the level of economic activity, the higher the money supply because people get loans from banks to finance these activities and the lower the level of economic activity, the lower the need for loans hence low money supply.




  • The nature of monetary policy. A tight/ restrictive/ contractionary monetary policy leads to low money supply in an economy while an expansionary monetary policy leads to high money supply in an economy.
  • The level of monetization of the economy. An economy with a large monetary sector has got high money supply. However, an economy with a large subsistence sector where money is not used as a medium of exchange has got low money supply.
  • The rate of government borrowing (financial accommodation). A high rate of government borrowing from the central bank implies printing more money which leads to high money supply. On the other hand, a low rate of government borrowing leads to low money supply as less money needs to be printed.
  • Balance of payments position. A balance of payments surplus leads to high money supply because foreign exchange earnings are converted into low currency. On the other hand, a balance of payments deficit leads to low money supply because local currency is used to close the deficit.
  • The level of capital inflow and outflow. Capital inflows say in form of foreign investments by foreigners lead to high money supply while capital outflows like profit repatriation lead to low money supply.




  • The level of credit creation by commercial banks. The higher the level of credit creation by commercial banks, the higher the money supply and the lower the level of credit creation by commercial banks, the lower the money supply. Credit creation leads to high money supply through the multiplier process.

Method of deficit financing. Printing of more money by the government through the central bank to meet budgetary deficits leads to high money supply and government borrowing from the public to finance budgetary deficits leads to low money supply

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14 FUNCTIONS OF THE CENTRAL BANK

  • Issuing of currency. The central bank has the sole authority to issue the country’s currency that circulates within the country i.e. it is the one responsible to order for minting of coins and printing of bank notes that act as legal tender within the country.




  • It acts as a banker to the government and government institutions i.e. it accepts the deposits from the government and safeguards such deposits as well as providing other banking services.
  • It is a banker to commercial banks and other financial institutions i.e. it accepts and safeguards deposits from commercial banks and acts as a clearing house to settle inter-bank indebtedness.
  • It acts as a banker to international agencies operating within the country e.g. IMF, Red Cross, F.A.O, UN agencies.
  • It controls the amount of money in circulation. The central bank uses the tools of monetary policy to regulate the amount of money in circulation and ensure economic stability.
  • It manages the country’s debt (public debt). The central bank is responsible for keeping an up-to-date profile/ record on the country’s total indebtedness.
  • It advises the government on monetary and economic issues e.g. formulating budgets, taxation, devaluation and other economic policies.




  • It is responsible for the control and supervision of all commercial banks and other financial institutions i.e. it ensures that peoples’ money is not at risk through close monitoring and supervision of these institutions.
  • It acts a custodian of foreign reserves. The central bank acts as the manager of foreign reserves in the country.
  • It regulates foreign exchange rates. The central bank is responsible for the day-to-day management of foreign exchange operations carried out by forex bureau.

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ADVANTAGES OF PIECE RATE SYSTEM OF WAGE PAYMENT

Piece rate system is a method of wage payment where workers are paid according e amount of
work done.




The following are advantages or Merits of piece rate system

  • Eliminates the need for constant supervision of the workers leading to reduced costs of production.
  • Minimizes labour strikes (industrial unrest) because it limits conflicts or disagreements over payments.
  • Higher output is realized because workers are encouraged to produce more so as to earn high wages.
  • Promotes team work / spirit among the workers leading to increased productivity.
  • Workers do the work at their own pace thereby reducing overstraining.
  • It is easy to calculate the wages because output is measurable.
  • Dull and slow workers are stimulated to work hard in order to earn high wages.




  • Encourages innovativeness among workers so as to produce a large output of and services to earn high wages.
  • Faster workers earn more wages than slow / lazy workers which minimises seating in the payment of wages.
  • Employers easily forecast output to be produced by the workers and this enables them to put aside the necessary amount of money for wage payment, that is, it simplifies employers costing calculations.
  • It helps employers in identification of suitable workers by enabling them to remove the lazy ones and maintain workers who put in more effort.
  • Tasks are completed faster since the system encourages hard work among the workers.
  • Employers are protected from falsified payments since wages are directly related to the level of output.
  • Output is increased and the cost per unit of a fixed factor of production employed reduces.
  • Demerits of piece rate system
  • Workers tend to over work themselves to earn high wages and this negative affects their health.
  • Reduces the quality of work because of hurried work for higher pay.




  • Leads to over production due to high output rates resulting into wastage of resources.
  • A worker who genuinely misses work or falls sick is not paid for the missed. This causes wage / income instability.
  • Hard working people are resented by the slow workers leading to conflicts arc income inequality.
  • Leads to high risks of accidents because workers try to increase the speed of work for higher wages.
  • It undermines trade union solidarity because of variations in piece rates one place to another and due to the conflicts between the hard working people the slow workers.
  • Slow but careful and efficient workers are discouraged since they produce output levels (and good quality output in a long time) that earns them low wages.
  • Workers may resist being transferred from one form of work where they acquired more experience to another.

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DISADVANTAGES OF THE TIME RATE SYSTEM OF WAGE PAYMENT

  • Encourages laziness by the workers.
  • Leads to low production of goods and services.
  • Slower and less efficient workers can easily be paid more than the faster and efficient workers.
  • Poor quality output is produced where there is no supervision.
  • Leads to high costs of supervision and time checking.

ADVANTAGES OF THE TIME RATE SYSTEM OF WAGE PAYMENT

Time rate system is a method of wage payment where workers are paid according to the time
they have worked for example per hour, day and month.




The following are advantages or Merits of time rate system

  • Encourages hard work in terms of working overtime. This is because workers put in more effort to earn more wages leading to high output produced.
  • Better quality output is produced due to constant supervision of the work and absence of hurrying.
  • Proper records of time are kept for easy or correct payment. Therefore, it becomes easy to calculate the wages given to the workers for example multiplying the wage rate by duration of work.
  • Workers are encouraged to report in time for work. This implies that workers are selfdriven.
  • Workers are able to receive regular wage payments. Employees receive wages even during periods of temporary idleness.
  • Less efficient / slower workers who take more time easily earn high wages as all workers are paid same wage.




  • Minimizes conflicts between workers and employers thereby creating industry peace.
  • In a situation where output cannot be measured for example health and education, it is difficult to apply piece rate.
  • Minimizes destruction of delicate machinery due to absence of hurrying as is the case of piece rate

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SIGNIFICANCE OF LABOUR IN THE PRODUCTION PROCESS

Labour refers to any human effort, whether physical or mental that is utilised in the production process.




Significance of labour in the production process

  • Labour creates capital or wealth from the reward it gets.
  • Labour determines value. The value of a good depends on the amount of labour used to produce it.
  • Labour utilises land and capital and without it, remain idle.
  • The quality and quantity of labour force, well motivated and having co-operant factors makes effective utilisation and exploitation of natural resources which raises output.
  • Labour is the end at which production is undertaken, that is, the need to satisfy human wants.

8 ADVANTAGES AND 10 DISADVANTAGES OF MONOPOLY

ADVANTAGES OF MONOPOLY

  • A monopoly is able to provide better working conditions to employees because of the high profits realised
  • In some monopolies, high standards of services/goods are offered
  • Monopolies always enjoy economies of scale. This may help the consumer in that the goods supplied by a monopoly will bear lower prices.
8 ADVANTAGES AND 10 DISADVANTAGES OF MONOPOLY
Photo by Suzy Hazelwood on Pexels.com




  • A monopolist may use the extra profit earned to carry out research and thus produce higher quality goods and services.
  • The consumer is protected in that essential services such as water and power supply is not left to private businesses who would exploit the consumers.

DISADVANTAGES OF MONOPOLY

  • Limited competition: Monopolies reduce or eliminate competition in the market, which can lead to higher prices and reduced choices for consumers. Without competitive pressure, a monopolistic company may have little incentive to innovate, improve product quality, or offer competitive pricing.
  • Higher prices: Monopolies have the power to set prices at their discretion since there are no alternative options for consumers. As a result, monopolistic companies may charge higher prices, leading to reduced affordability and potential exploitation of consumers.




  • Lack of consumer choice: With limited or no competition, consumers have fewer choices when it comes to products or services. Monopolies can dictate what is available in the market, limiting consumer options and potentially restricting innovation and variety.
  • Inefficient allocation of resources: Monopolistic companies may not have the same incentives to operate efficiently compared to competitive markets. Without competition, there is less pressure to optimize production processes, reduce costs, or invest in research and development. This can result in an inefficient allocation of resources and lower overall productivity.
  • Barriers to entry: Monopolies often establish barriers to entry, making it difficult for new competitors to enter the market. This can stifle entrepreneurship and innovation, as potential new entrants face significant obstacles in establishing a foothold in the industry.
  • Reduced consumer surplus: Consumer surplus refers to the difference between what consumers are willing to pay for a product or service and what they actually pay. In a monopoly, the ability to set higher prices reduces consumer surplus, as consumers are forced to pay higher prices without alternative options.




  • Potential for abuse of power: Monopolies hold significant market power, which can lead to the abuse of that power. This can include anti-competitive practices such as predatory pricing, exclusionary tactics against competitors, or unfair treatment of suppliers.
  • Lack of incentives for innovation: In competitive markets, companies are driven to innovate in order to gain a competitive edge and attract customers. In a monopoly, where there is no threat from competitors, the incentive for innovation may be diminished, leading to slower technological advancements and limited progress.
  • Negative impact on smaller businesses: Monopolies can have a detrimental effect on smaller businesses that are unable to compete with the dominant company. Smaller businesses may struggle to survive or may be forced out of the market altogether, leading to a concentration of economic power.




  • Economic inequality: Monopolies can contribute to economic inequality by consolidating wealth and power in the hands of a few individuals or entities. This can exacerbate income disparities and limit opportunities for smaller businesses and entrepreneurs.

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