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70 Cards in this Set
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Financial Institutions: Definition, Types and Examples of the Types |
Defintion:
All business organisations which hold money for individuals and may borrow from them in order to give loans or make other investments
Types:
•Banking Financial Institutions
Institutions whose liabilities are counted as part of the total supply of money
e.g.
•Commerical Banks •Central Bank •Merchant Banks •Development Banks •Savings banks
•Non-Banking Financial Institutions
Institutions whose liabilities are not counted as part of the total supply of money
e.g.
•Insurance companies •Hire purchase companies •Building societies |
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Bank: Definition and Types |
Defintion:
A commercial institution which performs various financial activities such as accepting and handling the deposits of customers
Types:
•Commercial Banks •Central Banks •Merchant Banks •Development Banks •Savings Banks |
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Commercial Banks: Definition, Examples, Characteristics, and Functions |
Defintion:
Financial Institutions which accepts deposits and other valuables from the public for safe keeping, with the sole aim of making profit
Examples:
•First Bank of Nigera Plc. •Union Bank of Nigeria Plc. •Zenith Bank Plc. •Access Bank Plc. •Diamond Bank Plc. •First City Momument Bank Plc. •Guaranty Trust Bank Plc. •Oceanic Bank Plc. •United Bank of Nigeria Plc. •Wema Bank Plc.
Characteristics:
•Comercial Banks are Limited Liability Companies •Motive for establishment is profit making •Members of the money market •Comercial Banks are incorporated •They accept deposits and other valuables
Functions:
•Acceptance of Deposits •Lending of money •Agent of Payment •Safe Keeping of Valuables •Discounting Bill of Exchange •Issuance of Bank Statement •Investment and stock exchange transactions •Issuance of travellers' cheque •Foreign exchange transaction •Provision of financial advice •Facilitate international trade •Act as an executor for their customers |
Two characteristics can be found in the Definition PNC Memory Palace |
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Bank Accounts: Types and their Features |
•Current Account
The type of bank account usually operated by businessmen and organisations and is required if a customer wishes to make payments using cheques
Features:
•Money can be withdrawn frequently •Customers are entitled to the use of a cheque book •Payment of commission is made by the customers to the bank •Holders are not entitled to interest •Other people can withdraw money from accounts on the behalf of customers
•Savings Account
The most common type of bank account that encourages low income earners to develop the habit of saving
Features:
•Money can only be withdrawn occasionally •It attracts a favourable rate of interest •Holders are issued a passbook •Withdrawals cannot be made by another person on the behalf of customers
•Fixed Deposit Account (Time Account Deposit)
The type of account usually operated by individuals and organisations that have excess liquidity, who are hoping to earn interest on their deposits
Features:
•Money is deposited for a specific period of time •It attracts higher interest rates •Notice of seven days must be given before a withdrawal |
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Credit Facilites Provided by Commercial Banks |
•Loans
•Overdrafts
•Discounting Bill of Exchange |
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Ways by which commercial banks create credit or money |
•By granting loans to members of the public and charging them interest
•By granting overdraft to customers that have a current account
•By giving out loans and overdrafts when the cash reserve is low |
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Cheques: Defintion, Features, and the Parties to a Cheque |
Definition:
An order written by the drawer to a bank to pay on demand a specified sum of money to the person named as the payee on the cheque
Features: •A cheque is an order to pay •Its an unconditional order •The amount must be specified •It must be in writing •The account number of the drawer is stated •The name and branch of the bank appear on the cheque •It is addresed by one person to another •The name of the payee must be shown on the cheque •A stamp duty is paid on a cheque •Amount must be clearly written in words and figures
Parties to a cheque: •Drawer The owner of the account on which the cheque is drawn •Drawee The bank on which the cheque is drawn •Payee The person to whom the cheque is made payable |
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Cheque: Types, Advantages of Payment by Cheque |
Types:
Order Cheque
A cheque made payable to the person or firm named on it
Bearer Cheque
A cheque made payable to the bearer (whoever presents it)
Open Cheque
A cheque that can be presented and cashed over the counter of the bank which it is drawn
Crossed Cheque
A cheque that has two parallel lines drawn across it's face that cannot be cashed at the counter and must be paid into a current account
Other Forms of Cheques:
Stale Cheque
A type of cheque that has been in circulation for more than six months and as a result cannot be cashed as it is considered expired
Post dated cheque
A type of cheque that cannot be cashed before the date written on it
Dishonoured cheque
A cheque which a banker, for some reason, has refused to pay on presentation
Advantages of Payment by Cheque:
•Convenience
•Safe means of payment
•Serves as proof of payment
•Saves time and energy
•It helps to economies the use of currency notes and coins
•Security
•For record purposes
•Easy to stop payment
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Cheque: Precautionary Measures to be Taken when Drawing a Cheque and Reasons for Dishonouring a Cheque |
Precautionary Measures to be Taken when Drawing a Cheque:
•The signature must be consistent
•The drawer must sign any alteration of on the cheque
•The cheque must not be folded
•The amount must be written in both figures and words
•The name of the payee should be properly written on the cheque
•The signature must be such that it cannot easily be forged
Reasons for Dishonouring a Cheque:
•Insufficient funds
•Irregular Signature
•Difference in figures and words
•No date
•Bankruptcy
•Alteration of cheque
•Mutilation of cheque
•Stoppage of payment
•Stale cheque
•Certified cheque |
Boy's Living Room Memory Palace (Temporary) |
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Central Bank: Definition, Characteristics, and Functions |
Definition:
The highest financial institution in a country which carries out the monetary policy of the government and acts as a banker to the government and commercial banks
Characteristics:
•Not profit oriented •There is only one central bank is a country •It is the highest financial institution •Owned by the government •Established by an act of Parliament •Does not conduct transactions with private individuals
Functions:
•Banker to the government •Issuance and control of currency •Banker's bank •Lender of last resort •Foreign exchange transaction •Management of national debt •Maintenance of external reserves •Responsible for monetary policy •Formulation of rules and regulations guiding the banking industry •External business |
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Central Banks vs Commercial Banks |
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Bank Clearing House: Definition and Types |
Definition:
An institution established by member banks to simplify exchanging and obtaining payments for the cheques that are paid into bank branches throughout the country
Types:
•Local clearing house
A type of clearing house which takes care of the clearance of cheques among various banks in the same town
•Head office clearing house
A type of clearing house that settles cheques drawn by the customers of a bank from various branches
•Bankers clearing house
A type of clearing house where the ultimate clearance and settlement of cheques are carried out in a country |
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Development Banks: Definition and Functions |
Definition:
Specialised financial institutions which provide long-term credit or loans to other enterprises for capital projects
Functions:
•Provision of funds for capital projects
•Manpower development
•Implementation of government policies
•Render special advice
•Supervision of development projects
•They underwrite security
•They undertake research |
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Merchant Banks: Definition and Functions |
Definition:
Financial institutions that preform specialised functions, such as the acceptance of bills of exchange, issuance of loans for foreign trade admissions, issuance of new shares, and provision of medium and long term loans
Functions:
•Discounting bill of exchange
•Loan to foreign traders
•Advisers to companies
•Underwriting of shares
•Provision of long term loans
•Trust management
•Management of merger bind
•Loan Syndication
•Provision of corporate management services
•Acceptance of large deposit
•Equipment leasing |
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Merchant Banks vs Commercial Banks |
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Mortgage Banks: Definition and Functions |
Definition:
Financial institutions that specialise in granting loans to individuals and corporate bodies for building purposes
Functions:
•Acceptance of deposits •Provision of long-term loans •Development of mortgage institutions •Give advice on housing matters •Provision of houses |
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Insurance Companies: Definition, Examples, and Functions |
Definition:
Financial institutions that are concerned with insurance
Examples:
•Reinsurance Corporation of Nigeria •National Insurance Corporation of Nigeria •Industrial and General Insurance •Custodian and Allied Insurances Nig. Ltd •Lion of Africa Insurance •Amicable Insurance
Functions:
•It facilitates international trade
•It offers investment opportunities
•It leads to risk reduction
•Provision of security
•Provides a means of savings
•It serves as collateral security
•Motivation of workers
•Provision for old age and disability |
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Insurance: Definition |
A contract between an insurer and an insured, under which an insurer promises to indemify (compensate) the insurer against loss which he may suffer in the future, upon the payment of a premium;
A provision made an individual or an enterprise against the occurance of some future loss |
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Money Market: Definition, Instruments Used in the Money Market, and Institutions Involved |
Definition Instruments used in the money market Institutions involved |
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Traditional Financial Institutions: Definition, Functions |
Definition:
The coming together of a group of people with common interest in the same place of work or community who mutually agree to pool their resources
Functions:
•It encourages savings
•Assists members to borrow
•It ensures proper management of funds
•Promotion of investment
•Assistance to members in time of need |
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Money Market: Definition, Instruments Used in the Money Market, and Institutions Involved |
Definition:
A market for short term loans that consists of institutions and individuals who either have money to lend or wish to borrow on a short-term basis
Instruments used in the money market:
•Treasury bills
•Bill of exchange
•Call money funds
Institutions involved:
•Central bank •Commercial banks •Acceptance houses •Finance houses •Discount houses •Insurance companies |
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Capital Market: Definition, Instruments Used in the Captial Market, and Institutions Involved |
Definition:
A market for medium-term and long-term loans which consists of all the institutions which are concerned with either the supply of or the demand for long-term capital
Instruments used in the capital market:
•Stocks and shares
Institutions involved:
•Issuing houses
•Insurance companies
•Development banks
•Building societies
•National Provident Fund
•Stock Exchange |
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The Stock Exchange Market: Definition and Importance |
Definition:
A highly organised market where investors can buy and sell existing securities like shares, stocks, and debentures
Importance:
•Serves as an avenue of raising capital
•Provision of employment opportunities
•Provision of information to investors
•Facilitates transfer of investment
•It is a market for investment
•It provides yardstick for measuring performance of companies
•It leads an increase in the standard of living |
Business Man holding a newspaper |
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Money: Functions and Forms |
Functions
Forms |
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Money: Definition, Characteristics |
Definition:
Anything that is generally acceptable as a medium of exchange and in the settlement of debts;
Anything that is generally acceptable as a means of payment
Characteristics:
•General Acceptability
•Portability
•Relative scarcity
•Homogeneity
•Durability
•Stability
•Divisibility
•Recognisability
•No intrinsic value |
A scale |
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Money: Functions and Forms |
Functions:
•Medium of exchange
•Standard of deferred payment
•Unit of account
•Store of value
•As a measure of value
Forms:
•Coins
•Commodity money
•Bank notes
•Partial money
•Legal tender
•Token money
•Deposit money
•Fiat money
•Fiduciary note
•Quasi money |
A safe A balloon tied to a cob |
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Trade by Barter: Definition and Disadvantages |
Definition:
A form of trading in which good are exchanged directly for other goods without the use of money as a medium of exchange
Disadvantages:
•Problem of double coincidence of wants
•No fixed rate of exchange
•Wastage of time and effort
•Problems of indivisibility
•Problems created by the bulkiness of some goods
•No room for deferred payment
•It discourges borrowing and lending
•It discourages large scale production
•Difficulty in storing weath |
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Money vs Other Commodities used for exchange in trade by barter |
Similarities:
•There are fluctuations in the value of money and other commodities •Money and other commodities are used for exchange •Both money and other commodities have their respective markets •Both are demanded by people •The prices of both are determined by the forces of demand and supply •They are all regarded as commodities •Both are demanded by people
Differences:
•Money is generally acceptable while other commodities are not
•Money is portable while other commodities may not be portable
•Money is relatively scarce while other commodities are not
•Money is durable while other commodities are not
•Money is durable while other commodities are not
•Money is stable while other commodities used in trade by barter are not
•Money is divisible into small units while other commodities are not
•Money is easily recongnisable by the people, other commodities are not
•Money has no intrinsic value while other commodities have intrinsic value
•Money is used as a medium of exchange, while other commodities are not
•Money can function as a standard for deferred payment, other commodities cannot be used
•Money serves as a unit of account, other commodities cannot
•Money can also serve as a measure of value while other commodities used in trade by barter cannot |
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Representative Money: Definition and Examples |
Definition:
Materials used as money which may not be legal tender and is acceptable to a certain extent as they lack the qualities possessed by money
Examples:
•Money order •Bank order •Credit transfer •Mail and telegraphic transfers •Bill of exchange •Cheques •Postal order •Promissory note •Bank drafts •Certified cheques |
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Markets: Definition and Categorisation |
A market may be defined as any system or arrangement by which people and institutions are brought into contact to exchange goods and services
Markets are categorised based on:
•The commodities sold in them •Channel of distribution •The prices of commodities |
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Markets: Types of Markets According to the commodities sold in them |
•Money market
•Capital market
•Consumer goods market
•Primary products market
•Factor market
•Foreign exchange market
•Labour market
•Stock exchange market |
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Markets: Types of Markets According to the Channel of Distribution |
•Wholesale market
•Retail market |
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Markets: Types of Markets according to the prices of commodities and the conditions necessary for those markets |
•Perfect Market
A market in which buyers and sellers cannot influence the prices of goods and services
Conditions Necessary
•Homogenous goods •Free entry and exit •Large amount of buyers and sellers •No preferential treatment •Perfect Knowledge •Common Price •Portable goods •Easy transfer of the factors of production
•Imperfect Market
A market in which buyers and sellers can easily influence the prices of goods and services
Conditions Necessary •The goods are not homogeneous •There is no free entry and exit •There are few buyers and sellers •There is preferential treatment •There is no perfect information •There is no common price •Goods are not portable •Difficulties in the transfer of factors of production (Difficult transfer of the factors of production) |
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Imperfect Market: Types |
•Monopoly:
Imperfect market in which there is a single seller of a particular good or service
•Monopolistic Competition An imperfect market in which there is a large number of producers dealing with different products or services such that no product of one firm is seen as a perfect substitute for that of another
•Duopoly
An imperfect market in which there are only two producers of the same commodity
•Oligopoly
An imperfect market in which there are only few producers or sellers of the same commodity
•Monopsony
Type of market in which there is only one buyer for a product |
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Monopoly: Definition, Monopolistic Competition, Causes |
Definition:
A market situation where there is one producer or supplier of a particular good or service that has no substitute
Monopolistic Competition:
A market situation which combines the fundamental characteristics of both pure monopoly and perfect competition
Causes of Monopoly:
•Act of Parliament
•Patent Law
•Level of technology
•Effective advertising
•Protection of public interests
•Natural cause
•Merging of producers |
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Monopoly: Advantages, Disadvantages, Control |
Advantages: •Standardisation •Centralised management •Economies of large scale production •Greater efficiency •It leads to invention •Better use of resources
•Increase in supply •Avoidance of duplication •Greater opportunity to expand operations
Disadvantages: •Danger of exploitation •It leads to hoarding •Decline in efficiency •Over-production and waste •Loss of freedom of choice •Production of sub-standard goods
Control: •Provision of substitute products •Privatisation •Stoppage of insurance of patent law •Discouraging merging of firms •Discouraging merging of firms•Reduction of tarrifs•Price control •Reduction of tarrifs •Price control |
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Monopolistic competition vs Perfect competition |
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Price Determination
Short run
Long run |
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Equilibrium of the monopolist |
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Public Finance: Definition, Objectives |
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Fiscal Policy: Definition, Objectives |
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Government Revenue or Public Revenue: Definition, Types, Sources |
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Government Expenditure: Definition, Types or Classification, Objective or Main Aims |
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Taxation: Definition, Features or Characteristics, Principles of a Good Tax System |
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Taxation: Reasons why governemnt imposes taxes, Economic effects, Problems associated with Tax Collection |
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Incidence of Tax Collection: Definition, Types |
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Taxation: Types |
Direct
Indirect |
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Direct Tax: |
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Indirect Tax: |
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Taxation: Systems of Taxation |
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Mathematical Approach to Taxation:
Define: •Tax Base •Tax Rate •Disposable Income |
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Budget: Definition, Importance, Types |
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National or Public Debt: Definition, Sources of Government Borrowing, Reasons why the government borrows |
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Debt Servicing and Debt Management: Definition |
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Revenue Allocation: Definition, Types |
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National Income Accounting: Definition, Major National Income Concepts |
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National Income Accounting: Factors that determine the national income of a country, Methods of measuring national income |
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National Income Accounting: Reasons for Measuring National Income, Problems of Computing National Income |
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Circular Flow of Income: Two Sector Circular Flow |
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Circular Flow of Income: Three Sector Circular Flow |
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Cost of Living and Standard of Living: Definition, Relationship |
Definitions:
Cost of Living
The amount of money an individual spends to obtain the goods and services which will sustain him at a particular time
Standard of Living
The level of economic well-being or welfare attained by individuals in a country at a particular time
Relationship
The cost of living determines the standard of living
A rise in the cost of living reduces the standard of living
A decrease in the cost of living increases the standard of living |
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Demand for Money: Definition, Reasons for holding money |
The demand for money is also known as liquidity preference
Definition:
The total amount of money which all individuals in the economy wish, for varous reasons, to hold
Reasons or Motives for Holding Money
Transactionary Motives
Precautionary Motives
When people demand money in order to cover unforseen expenditures
Speculative Motives
The desire to hold money (cash balance) in order to make speculative dealings in the bond market |
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Supply of Money: Definition, Factors Affecting it |
Definition:
The total amount of money available for use in the economy at a given period in time
Factors Affecting It:
•Bank rate
•Cash reserves
•Economic situation
•Demand for excess reserves
•Total reserves of the central bank
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Value of Money: Definition, Factors that Determine the Value of Money |
Definition:
The quantity of goods and services which a given amount of money can buy; the purchasing power of money
Factors that Determine the Value of Money
•The price level
•The supply of money and its speed in circulation
•Inflation and Deflation
•Volume of goods and services |
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Price Index or Index Number: Definition, Equation |
Definition:
A weighted average of prices and is expressed as a percentage of prices existing in a base year
Equation:
Price Index= price in the current year/price in the previous year |
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The Quantity Theory of Money: Definition, Equation |
Definition:
The relationship between the quantity of money in circulation in an economy and the price level
Equation:
MV=PT
M= Supply of money V= velocity of circulation of money P= price level T= quantity of goods |
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Inflation: Definition, Types, Causes |
Definition: A persistent rise in the general price level of goods and services
Types
Demand-Pull Inflation
Inflation that occurs when the demand for goods and services is greater than their supply the demand for goods and services is greater than their supply
Cost-Push Inflation
Inflation that occurs when increases in the cost of production are passed onto consumers in the form of high prices of good and services
Hyper-Inflation
Also known as galloping or runaway inflation
Inflation that occurs when persistent inflation becomes uncontrollable and the value of money keeps declining rapidly
Persistent or Creeping Inflation
Also known as chronic inflation
Inflation that occurs when there is a slow but steady rise in volume of purchasing power and a fall in the supply of goods and services
When inflation involves a slow but steady rise in the general prices of goods and services
Causes
•Increase in demand
•Low production
•War
•Increase in salaries and wages
•High cost of production
•Budget deficit
•Population increase
•Excessive bank lending
•Level of importation
•Hoarding
•Inadequate storage facilities
•Industrial strike
•Money laundering |
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Inflation: Effects, Control, Reasons why Price Control System may not be suitable got controlling demand-pull inflation |
Effects
Positive Effects
•Reduction in burden of debt
•Higher profit margin
•Higher tax yield
•Higher output
Negative Effects
•Income redistribution
•Creditor loss •Discourages savings•Increase interest rate•Income redistribution•Creditor loss•Loss of value for money•Fall in standard of living•Discourages investment
•Increase interest rate•Income redistribution•Creditor loss•Loss of value for money•Fall in standard of living•Discourages investment •Increase interest rate•Income redistribution•Creditor loss•Loss of value for money•Fall in standard of living•Discourages investment •Loss of value for money •Income redistribution•Creditor loss•Loss of value for money•Fall in standard of living•Discourages investment •Income redistribution•Creditor loss•Loss of value for money•Fall in standard of living•Discourages investment
•Fall in standard of living
•Discourages investment
•Balance of payment problems
•Discourages exports
Control
•Use of contractionary monetary measures
•Use of fiscal measures
•Effective price control system
•Industrialisation
•Checking the activities of hoarders
•Increase production
•Reduction in government expenditure or surplus budget•Industrialisation •Checking the activities of hoarders•Increase production •Granting of subsidy to enterprises •Removal of bottlenecks in distribution system•Discouragemenr of importation•Use of income policies •Granting of subsidy to enterprises
•Removal of bottlenecks in distribution system
•Discouragemenr of importation
•Use of income policies
Reasons why Price Control System may not be suitable got controlling demand-pull inflation
•Goods and generally in short supply
•Buyers will prefer buying at higher prices
•The interaction of the forces of demand and supply will work sgainst price control system
•Price control system is prone to a lot of malpractices
•The existence of black market will contribute a lot in making price control not suitable in checking demand-pull inflation |
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Terminologies Associated with Inflation:
•Inflationary Gap
•Inflationary Spiral
•Disinflation
•Reflation
•Stagflation
•Slumpflation |
•Inflationary Gap
An economic situation in which the total demand in the economy exceeds the total supply of goods and services available to satisfy demand
•Inflationary Spiral
Caused by an interaction of income factors especially wages and prices such that an increase in the price level causes workers to demand higher wages which causes the price level to further increase, thereby increasing the cost of production
•Disinflation
A set of measures by which the inflationary pressure in an economy is removed so as to maintain the value of money
•Reflation
An economic state of affairs in which prices, employment, output, etc are picking up a gain as a result of conscious government policy to that affect
•Stagflation
The high rate of inflation which exists at the same time as industrial production is slowing down;
High increases in the price level which are not accompanied by any increase in industrial production
•Slumpflation
An economic condition in which much reduced economic activity co-exists with inflation |
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Deflation: Definition, Causes, Effects, Control |
Definition:
A continuous fall in the price level of goods and services as a result of a decrease in the volume of money in circulation
Causes:
•Budget Surplus
•Increase in bank rate
•Increase in production
•Increase in taxation
Effects:
•Decline in profits
•Results in unemployment
•Fall in prices of goods
•Reduction in investment
•Creditors gain
•Encourages exports
•Discourages imports
•Fixed Income earners gain
•Increase in value of money
•Encourages savings
Control:
•Reduction in taxation
•Use of deficit budgeting
•Reduction in bank rate
•Increase in wages and salaries
•Use of open market operation |
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