Edexcel AS/A Level Economics revision

The role of central banks and governments in regulating the financial system A Central Bank is an institution that manages a state's currency, monetary supply and interest rates. They also usually oversee the commercial banking system within the state. The UK's central bank is the Bank of England and the US' is the Federal Reserve.  The main functions of a Central Bank:  Monetary policy . Central banks usually implement this by raising/lowering the base interest rate for example.  Acting as a banker to the  government - so carrying out exchange, remittance, etc. on behalf of the government.  Acting as a banker for other banks - the central bank will often supervise commercial banks and will act as a 'lender of last resort' to them.  Regulating the financial system - will regulate the system to ensure stability.  Liquidity Liquidity is how easily assets can be traded. Cash is the greatest liquidity as it can be immediately traded for any good. 

The Great Depression  Notes on the BBC documentary :   The Great Depression of 1929 was a prolonged economic recession during which thousands of banks failed. It lasted over a decade, easing with the start of the second world war. It happened on the 23rd of October 1929, during which share prices plummeted, as there were no buyers and many sellers.  Timeline:  1919 - the US won WWI, bringing about optimism. Across the pond, Britain and Europe had been financially crippled while the US was thriving.  1920s - PROSPERITY! brought about by electrification, new tech, the car industry, etc. There was a consumer culture - mass consumption and instalment buying was rife.  Consumer credit became more widespread - people would 'buy now, pay later', as the tendency towards instant gratification grew.  Investing became more normal. Previously only those in the industry had invested but many 'normal' people became investors for the first time in the 20s. this was becau

Monopsonies A monopsony is a market in which there is a single buyer of a good/service. The monopsonist has buying/bargaining power in their market, which they can exploit to negotiate lower prices. They do this to maximise profits.  Monopsonists exist is both product and labour markets.  Where there is one buyer and many sellers.  Examples:  Amazon with books/e-books, Tesco with milk, Ryanair with airplanes, the NHS with prescription drugs.  May occur due to: Geographic immobility The government being the sole employer Unemployment making people desperate Lack of information Monopoly power in selling products  Costs and benefits of monopsonies: Benefits : The monopsonist benefits as they decrease their costs and increase their profits The consumers often benefit as monopsonists may pass on the lower costs in the form of lower prices.  Costs :  In a labour market - workers get lower wages and often there is less overall employment.  The

Public sector finances  Automatic stabilisers are policies designed to immediately offset fluctuations in the economy and work to stabilise the economy before any intervention by the government/policy makers.  e.g in a recession as unemployment increases, the government is automatically spending more in unemployment benefits due to JSA already being in place Discretionary fiscal policy is when the government makes deliberate changes to spending, tax rates or borrowing in order to boost aggregate demand.  The fiscal deficit is the amount that government expenditure exceeds the revenue the brings in. Occur when tax revenues aren't enough to fund spending so the government must borrow.  The national debt is the total amount that the government owes to its creditors. This is the total level of debt accumulated over previous years to help finance spending.  A  structural deficit exists at any point in the business cycle (due to the difference in government expenditu

Specialisation and the division of labour  Specialisation is concentration on a product/task in order to produce it/carry it out more efficiently. It is a system of organisation where economic units such as households or nations are not self-sufficient but concentrate on producing certain goods and services and trading the surplus with others. This is in contrast to autarky/self-sufficiency.  The division of labour is a process that allows specialisation to occur - the production procedure is broken down into a sequence of stages or tasks and workers are assigned to a particular stage. This allows for greater efficiency as each individual becomes more skilled at their particular task, more so than they ever would have been had they been doing multiple tasks.  Efficiency = greater output for a given input.  Advantages to DoL:  As workers' skills and focus improve, they are able to produce more in a given time so productivity increases.  Transition times are minimised

Types of economy  There are three types of economy: free market , mixed and command .  A free market economy allocates most resources, goods and services through the market mechanism, with little intervention by the government. The private sector is often significantly involved in healthcare, education, transport, etc.   e.g. USA, Australia  A mixed economy is an economy where both the free market and the government allocate significant proportions of total resources. The government/free market typically have 40-60% control of resource allocation. The welfare state is larger than in free market economies and healthcare, education, etc are often provided by the state.  e.g. UK, France, Denmark A command economy is where the state allocates most resources and the market plays a limited role.  e.g. North Korea, Cuba Adam Smith - Advocated for a laissez-faire government approach, but recognised that the state had an important role in providing a framework in which free market