Money, Banking_Trade Unions

Money is anything generally accepted in payment. The DEFINITION focuses on acceptance — not on physical form.

The four functions of money (mnemonic: MUSS):

1. Medium of exchange. Money is exchanged for goods and services, replacing barter. Without money, every transaction would require a 'double coincidence of wants' — I have what you want AND you have what I want.

2. Unit of account (measure of value). Prices are quoted in money terms, allowing comparison. A car at $20,000 vs a meal at$20 — same units, easy comparison.

3. Store of value. Money can be saved and used later. (This function is undermined by inflation — saved money loses purchasing power.)

4. Standard of deferred payment. Allows lending and borrowing — debts denominated in money to be repaid later.

Forms of money.

Form	Example
Cash (currency)	Coins and notes
Bank deposits	Current accounts, savings accounts
Electronic / digital	Bank transfers, debit/credit cards

In modern economies, MOST money is bank deposits, not cash. The 'money supply' includes both.

Cambridge tip. Mark schemes for "functions of money" expect ALL FOUR. Memorise MUSS. Each function should have a brief example or explanation for full marks.

Commercial banks (e.g., Barclays, HSBC, Bank of America).

Profit-seeking institutions providing banking services to the public.

Three core functions:

1. Accept deposits. Current accounts, savings accounts, fixed deposits. Often pay interest to savers.
2. Make loans. Mortgages, personal loans, business loans, credit cards. Charge interest. The DIFFERENCE between interest charged on loans and paid on deposits is the bank's main income.
3. Provide payment services. Cheques, debit/credit cards, online banking, foreign exchange, ATMs.

Central bank (e.g., Bank of England, US Federal Reserve, European Central Bank).

Government-owned. Does NOT take deposits from the public. Has different responsibilities:

Five functions:

1. Issue currency. Prints banknotes.
2. Set monetary policy. Sets interest rates to influence inflation and growth.
3. Banker to government. Manages government accounts and government debt.
4. Banker to commercial banks. Banks hold accounts at the central bank; central bank can lend to them.
5. Lender of last resort. When commercial banks face liquidity crises, the central bank lends to prevent collapse.

Cambridge tip. Mark schemes consistently penalise candidates who confuse commercial banks with the central bank. The central bank does NOT take deposits from individuals.

A trade union is an organisation of workers that negotiates with employers on behalf of its members. The aim: better pay, conditions, and job security.

How unions raise wages:

1. Collective bargaining. Negotiating AS A GROUP is more powerful than individual negotiation. The threat of STRIKE (work stoppage) raises union bargaining power.

2. Restricting labour supply. Through entry requirements (apprenticeships, qualifications, certifications) or limits on hours, unions reduce the supply of qualified workers — raising the equilibrium wage. e.g., the legal profession limits entry, raising lawyer wages.

3. Lobbying for protective legislation. Minimum-wage laws, working-time directives, employment protection.

Advantages of trade unions:

• Better pay for members.
• Better working conditions (hours, safety).
• Greater job security (protection against unfair dismissal).
• Voice for workers in firm decisions.

Disadvantages of trade unions:

• Unemployment. Higher wages can price some workers out of jobs, especially the unskilled.
• Cost-push inflation. Firms pass higher labour costs to consumers via higher prices.
• Strikes disrupt production. Lost output during strikes harms firms, workers, and consumers.
• Reduced firm competitiveness. Firms with high union wages may struggle against foreign competitors.

Cambridge tip. Examiner reports praise candidates who BALANCE the discussion — recognising both worker protection and economic costs. One-sided answers cap at the lower bands.