Money, banking and households

G3 Economics - syllabus K343, 2027

What money is, how central and commercial banks work, and why households spend, save and borrow.

• Money: forms, functions and characteristics

  Money is anything widely accepted in exchange; it works as a medium of exchange, store of value, unit of account and standard of deferred payment.

• The central bank

  A central bank issues currency, is the government's bank and the banks' bank, and runs monetary policy.

• Commercial banks

  Commercial banks take deposits, make loans and handle payments, linking savers with borrowers.

• How income and interest rates affect spending, saving and borrowing

  Higher income raises spending and saving; higher interest rates encourage saving and discourage borrowing.

• Confidence, age and culture

  Confident households spend and borrow more; saving peaks in middle age; culture shapes attitudes to debt.

• Put it together: Interest rates change

  The central bank is deciding what to do with interest rates. Compare how each choice affects different households and firms.