Question 1

What is covered in the Money, Banking and Personal Finance section of CCEA GCSE Economics?

Accepted Answer

This is Section 3 of the CCEA GCSE Economics specification. It covers money (its functions as a medium of exchange, store of value, unit of account and standard for deferred payment, and its characteristics) and the financial sector (commercial banks, the central bank, building societies, insurance companies and the stock market). It also covers personal finance: budgeting income against expenditure, the reasons and methods for saving, the forms and costs of borrowing, the role of interest, and how to make informed financial decisions, including simple interest calculations.

Question 2

What are the functions of money?

Accepted Answer

Money has four functions. As a medium of exchange it is widely accepted in return for goods and services, removing the need for barter and a double coincidence of wants. As a store of value it holds its value reasonably well, so people can save now and spend later. As a unit of account it measures and compares the value of goods, so prices can be set. As a standard for deferred payment it lets debts and future payments be agreed in money terms, which makes borrowing and lending possible. Good money is also acceptable, durable, portable, divisible, scarce and hard to forge.

Question 3

What do commercial banks and the central bank do?

Accepted Answer

Commercial banks are the high-street banks that take deposits (paying interest and encouraging saving), lend through loans, overdrafts and mortgages (charging interest), and run the payments system. They profit from the gap between interest charged and interest paid. The central bank, the Bank of England, is the government's bank: it issues notes, sets the official interest rate to control inflation, acts as lender of last resort to banks in trouble, and helps regulate the financial system to keep it stable.

Question 4

How does budgeting work in personal finance?

Accepted Answer

A budget is a plan comparing income (wages, benefits and other receipts) with expenditure (essential and non-essential spending). If income is greater than expenditure there is a surplus that can be saved or used to repay debt; if expenditure is greater there is a deficit that must be covered by borrowing or by cutting spending; and if they are equal the budget is balanced. Budgeting shows whether spending is affordable and helps people avoid getting into debt.

Question 5

What is the difference between simple and compound interest?

Accepted Answer

Interest is the reward for saving and the cost of borrowing. Simple interest is calculated only on the original amount each year, so the interest is the same every year and the total is the yearly interest multiplied by the number of years. Compound interest is calculated on the growing balance, so interest is earned on previous interest and the amount builds up faster. CCEA questions usually use simple interest, and a common error is to forget to multiply by the number of years or to confuse the two methods.

Question 6

How should I revise Money, Banking and Personal Finance?

Accepted Answer

Learn the four functions of money and explain why each is useful, and match each part of the financial sector to what it does. For personal finance, practise budgeting questions (income minus expenditure to find a surplus or deficit) and simple interest calculations until they are automatic. Learn the forms of saving and borrowing and their costs, and be ready to explain how to make an informed decision by comparing interest rates and total costs. Finish with timed CCEA past-paper questions.

Money, Banking and Personal Finance - CCEA GCSE Economics guide to money, the financial sector, budgeting, saving and borrowing

Money and the financial sector

Personal finance

How this section is assessed

How to revise this section

Syllabus, dot point by dot point

For the official specification

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