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style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35118/unit-2111-market-power-theory-of-production-and-costs-hl.html" title="Unit 2.11(1) Market power - Theory of production and costs (HL)">Unit 2.11(1) Market power - Theory of production and costs (HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35125/unit-2112-market-power-perfect-competitionhl.html" title="Unit 2.11(2) Market power - Perfect competition(HL)">Unit 2.11(2) Market power - Perfect competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35147/unit-2113-market-power-monopolyhl.html" title="Unit 2.11(3) Market power - Monopoly(HL)">Unit 2.11(3) Market power - Monopoly(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35151/unit-2114-market-power-monopolistic-competitionhl.html" title="Unit 2.11(4) Market power - Monopolistic competition(HL)">Unit 2.11(4) Market power - Monopolistic competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35153/unit-2115-market-power-oligopolyhl.html" title="Unit 2.11(5) Market power - Oligopoly(HL)">Unit 2.11(5) Market power - Oligopoly(HL)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41603/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43378/opportunity-cost-and-production-possibility-curves.html" title="Opportunity cost and production possibility curves">Opportunity cost and production possibility curves</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42559/demand-theory.html" title="Demand theory">Demand theory</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41886/the-price-mechanism.html" title="The price mechanism">The price mechanism</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43188/market-demand-and-supply.html" title="Market demand and supply">Market demand and supply</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41705/demerit-goods.html" title="Demerit goods">Demerit goods</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42275/market-failure-and-climate-change.html" title="Market failure and climate change">Market failure and climate change</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42925/market-power.html" title="Market power">Market power</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42099/applying-game-theory.html" title="Applying game theory">Applying game theory</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../34407/chapter-3-macroeconomics.html" title="Chapter 3: Macroeconomics">Chapter 3: Macroeconomics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34355/unit-311-measuring-the-level-of-economic-activity.html" title="Unit 3.1(1): Measuring the level of economic activity">Unit 3.1(1): Measuring the level of economic activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34432/unit-312-measuring-economic-development.html" title="Unit 3.1(2): Measuring Economic Development">Unit 3.1(2): Measuring Economic Development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34485/unit-321-variations-in-economic-activity-aggregate-demand-ad-.html" title="Unit 3.2(1): Variations in economic activity - aggregate demand (AD) ">Unit 3.2(1): Variations in economic activity - aggregate demand (AD) </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34487/unit-322-variations-in-economic-activity-aggregate-supplyas.html" title="Unit 3.2(2): Variations in economic activity - aggregate supply(AS)">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34758/unit-331-macroeconomic-objectives-economic-growth.html" title="Unit 3.3(1) Macroeconomic objectives: economic growth">Unit 3.3(1) Macroeconomic objectives: economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34771/unit-332-macroeconomic-objectives-unemployment-.html" title="Unit 3.3(2) Macroeconomic objectives: unemployment ">Unit 3.3(2) Macroeconomic objectives: unemployment </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34778/unit-333-macroeconomic-objectives-inflation-and-deflation--1.html" title="Unit 3.3(3) Macroeconomic objectives: inflation and deflation ">Unit 3.3(3) Macroeconomic objectives: inflation and deflation </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34925/unit-341-economics-of-inequality-and-poverty-1.html" title="Unit 3.4(1) Economics of inequality and poverty">Unit 3.4(1) Economics of inequality and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34946/unit-342-policies-to-improve-equality-equity-and-poverty.html" title="Unit 3.4(2) Policies to improve equality, equity and poverty">Unit 3.4(2) Policies to improve equality, equity and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34993/unit-35-government-management-of-the-economy-monetary-policy-1.html" title="Unit 3.5 Government management of the economy – monetary policy">Unit 3.5 Government management of the economy – monetary policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34962/unit-36-government-management-of-the-economy-fiscal-policy-1.html" title="Unit 3.6 Government management of the economy – fiscal policy">Unit 3.6 Government management of the economy – fiscal policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35017/unit-371-market-based-supply-side-policies--1.html" title="Unit 3.7(1) Market based supply-side policies ">Unit 3.7(1) Market based supply-side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35018/unit-372-interventionist-supply-side-policies-.html" title="Unit 3.7(2) Interventionist supply-side policies ">Unit 3.7(2) Interventionist supply-side policies </a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45803/economics-real-world-examples-and-extension-material--1.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42639/measuring-economic-well-being-1.html" title="Measuring economic well-being">Measuring economic well-being</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43044/inflation.html" title="Inflation">Inflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42350/inequality.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41639/inequity-1.html" title="Inequity">Inequity</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../35414/chapter-4-the-global-economy.html" title="Chapter 4: The Global Economy">Chapter 4: The Global Economy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35346/unit-41-benefits-of-international-trade-1.html" title="Unit 4.1 Benefits of international trade">Unit 4.1 Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35348/unit-4243-trade-protectionism-1.html" title="Unit 4.2/4.3 Trade protectionism">Unit 4.2/4.3 Trade protectionism</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35407/unit-44-economic-integration-.html" title="Unit 4.4 Economic integration ">Unit 4.4 Economic integration </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35409/unit-45-exchange-rates-1.html" title="Unit 4.5 Exchange rates">Unit 4.5 Exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35413/unit-46-balance-of-payments--1.html" title="Unit 4.6 Balance of payments ">Unit 4.6 Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35675/unit-47-sustainable-development.html" title="Unit 4.7 Sustainable development">Unit 4.7 Sustainable development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35685/unit-48-measuring-development--1.html" title="Unit 4.8 Measuring development ">Unit 4.8 Measuring development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35687/unit-49-barriers-to-economic-development-1.html" title="Unit 4.9 Barriers to economic development">Unit 4.9 Barriers to economic development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35702/unit-410-economic-growth-and-economic-development-strategies.html" title="Unit 4.10: Economic growth and economic development strategies">Unit 4.10: Economic growth and economic development strategies</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45804/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41927/foreign-currency-1.html" title="Foreign currency">Foreign currency</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43532/exchange-rates-1.html" title="Exchange rates">Exchange rates</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43804/balance-of-payments.html" title="Balance of payments">Balance of payments</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41796/economic-development-1.html" title="Economic development">Economic development</a></li></ul></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../20132/units-1-2-microeconomics.html" title="Units 1-2: Microeconomics">Units 1-2: Microeconomics</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 1: Introduction to economics">Unit 1: Introduction to economics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20091/introductory-activity-1.html" title="Introductory activity">Introductory activity</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20093/unit-11-scarcity-choice-and-opportunity-cost.html" title="Unit 1.1: Scarcity, choice and opportunity cost">Unit 1.1: Scarcity, choice and opportunity cost</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21647/factors-of-production-1.html" title="Factors of production">Factors of production</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20114/economic-systems.html" title="Economic systems">Economic systems</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20134/public-and-private-sectors-1.html" title="Public and private sectors">Public and private sectors</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28055/unit-12-economics-as-a-social-science-1.html" title="Unit 1.2: Economics as a social science">Unit 1.2: Economics as a social science</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29921/circular-flow-of-national-income.html" title="Circular flow of national income">Circular flow of national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29829/unit-1-review-terms-1.html" title="Unit 1: Review terms">Unit 1: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41600/introduction-to-economics-crossword-1.html" title="Introduction to economics crossword">Introduction to economics crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../4331/unit-1-multiple-choice-quiz.html" title="Unit 1: Multiple choice quiz">Unit 1: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20177/unit-21-23-competitive-markets-demand-and-supply-1.html" title="Unit 2.1-2.3: Competitive markets - demand and supply">Unit 2.1-2.3: Competitive markets - demand and supply</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28517/unit-21-demand-1.html" title="Unit 2.1: Demand">Unit 2.1: Demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22349/determinants-of-demand-1.html" title="Determinants of demand">Determinants of demand</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29949/unit-22-supply-.html" title="Unit 2.2: Supply ">Unit 2.2: Supply </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20184/changes-to-supply-and-demand-.html" title="Changes to supply and demand ">Changes to supply and demand </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21992/practise-exercises-1.html" title="Practise exercises">Practise exercises</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../26112/gold-exchange-game-demand-and-supply-1.html" title="Gold exchange game: Demand and supply">Gold exchange game: Demand and supply</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20194/unit-23-competitive-market-equilibrium-1.html" title="Unit 2.3: Competitive market equilibrium">Unit 2.3: Competitive market equilibrium</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20144/producer-and-consumer-surplus-1.html" title="Producer and consumer surplus">Producer and consumer surplus</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22351/veblen-goods-and-super-luxury-goods-1.html" title="Veblen goods and super luxury goods">Veblen goods and super luxury goods</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../25677/are-cryptocurrencies-the-new-tulipmania.html" title="Are Cryptocurrencies the new Tulipmania?">Are Cryptocurrencies the new Tulipmania?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20472/unit-21-23-multiple-choice-quiz.html" title="Unit 2.1-2.3: Multiple choice quiz">Unit 2.1-2.3: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20113/unit-24-consumer-and-producer-behaviour-hl-only-1.html" title="Unit 2.4: Consumer and producer behaviour (HL only)">Unit 2.4: Consumer and producer behaviour (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../36073/behavioural-economics-consumer-biases-nudge-theory-hl-only-1.html" title="Behavioural economics: Consumer biases / nudge theory (HL only)">Behavioural economics: Consumer biases / nudge theory (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20378/business-objectives-hl-only.html" title="Business objectives (HL only)">Business objectives (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28741/unit-21-24-review-terms--1.html" title="Unit 2.1-2.4: Review terms ">Unit 2.1-2.4: Review terms </a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20195/unit-25-26-elasticity-1.html" title="Unit 2.5-2.6: Elasticity">Unit 2.5-2.6: Elasticity</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28713/unit-25-price-elasticity-of-demand-1.html" title="Unit 2.5: Price elasticity of demand">Unit 2.5: Price elasticity of demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21545/determinants-of-price-elasticity-.html" title="Determinants of price elasticity ">Determinants of price elasticity </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21532/ped-elasticity-and-sales-revenue.html" title="PED elasticity and sales revenue?">PED elasticity and sales revenue?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21259/unit-25-income-elasticity-of-demand-yed.html" title="Unit 2.5: Income elasticity of demand (YED)">Unit 2.5: Income elasticity of demand (YED)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21200/unit-26-price-elasticity-of-supply.html" title="Unit 2.6: Price elasticity of supply">Unit 2.6: Price elasticity of supply</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20207/perfectly-elastic-inelastic-supply-curves.html" title="Perfectly elastic / inelastic supply curves">Perfectly elastic / inelastic supply curves</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20230/a-mathematical-note-about-elasticity-.html" title="A mathematical note about elasticity ">A mathematical note about elasticity </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39037/demand-and-supply-crossword.html" title="Demand and supply crossword">Demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29021/unit-25-26-review-terms-1.html" title="Unit 2.5-2.6: Review terms">Unit 2.5-2.6: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20474/unit-25-26-multiple-choice-quiz--1.html" title="Unit 2.5-2.6: Multiple choice quiz ">Unit 2.5-2.6: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44474/unit-21-25-competitive-markets-quiz-1.html" title="Unit 2.1- 2.5: Competitive markets quiz">Unit 2.1- 2.5: Competitive markets quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20243/unit-27-the-role-of-government-in-microeconomics--1.html" title="Unit 2.7: The role of government in microeconomics ">Unit 2.7: The role of government in microeconomics </a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26590/indirect-taxation.html" title="Indirect taxation">Indirect taxation</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20246/ped-and-the-burden-of-tax-hl-only-.html" title="PED and the burden of tax (HL only) ">PED and the burden of tax (HL only) </a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20277/government-subsidies--1.html" title="Government subsidies ">Government subsidies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29117/unit-27-indirect-tax-and-subsidy-review-terms-1.html" title="Unit 2.7: Indirect tax and subsidy review terms">Unit 2.7: Indirect tax and subsidy review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20287/price-controls-maximum-price--1.html" title="Price controls − maximum price ">Price controls − maximum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20288/minimum-price-.html" title="Minimum price ">Minimum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21540/minimum-wage-.html" title="Minimum wage ">Minimum wage </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38849/labour-market-crossword-1.html" title="Labour market crossword">Labour market crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29260/unit-27-price-controls-review-terms-1.html" title="Unit 2.7: Price controls review terms">Unit 2.7: Price controls review terms</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20303/unit-28-210-market-failure--1.html" title="Unit 2.8-2.10: Market failure ">Unit 2.8-2.10: Market failure </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21543/unit-28-merit-goods--1.html" title="Unit 2.8: Merit goods ">Unit 2.8: Merit goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23123/unit-28-demerit-goods-negative-externalities-1.html" title="Unit 2.8: Demerit goods / negative externalities">Unit 2.8: Demerit goods / negative externalities</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38850/market-failure-crossword-1.html" title="Market failure crossword">Market failure crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29262/unit-29-economics-of-the-environment-and-public-goods--1.html" title="Unit 2.9: Economics of the environment and public goods ">Unit 2.9: Economics of the environment and public goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20332/unit-210-asymmetric-information-hl-only-1.html" title="Unit 2.10: Asymmetric information (HL only)">Unit 2.10: Asymmetric information (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29828/unit-28-210-market-failure-review-sheet.html" title="Unit 2.8-2.10: Market failure review sheet">Unit 2.8-2.10: Market failure review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29827/unit-28-210-market-failure-review-terms.html" title="Unit 2.8-2.10: Market failure review terms">Unit 2.8-2.10: Market failure review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20479/unit-27-210-multiple-choice-quiz--1.html" title="Unit 2.7-2.10: Multiple choice quiz ">Unit 2.7-2.10: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44501/unit-27-210-government-failure-revision-quiz-1.html" title="Unit 2.7-2.10 Government failure revision quiz">Unit 2.7-2.10 Government failure revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20330/unit-211-market-power-hl-only-1.html" title="Unit 2.11: Market power (HL only)">Unit 2.11: Market power (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29835/assessment-map.html" title="Assessment map">Assessment map</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21528/production-hl-only.html" title="Production (HL only)">Production (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29978/revenue-theory-hl-only.html" title="Revenue theory (HL only)">Revenue theory (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20357/costs-of-production-hl-only.html" title="Costs of production (HL only)">Costs of production (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21286/economies-and-diseconomies-of-scale-hl-only.html" title="Economies and diseconomies of scale (HL only)">Economies and diseconomies of scale (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22494/long-run-average-cost-curves-hl-only.html" title="Long run average cost curves (HL only)">Long run average cost curves (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../29838/breakeven-hl-only.html" title="Breakeven (HL only)">Breakeven (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20340/economic-profit-hl-only.html" title="Economic profit (HL only)">Economic profit (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39082/market-power-crossword.html" title="Market power crossword">Market power crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22495/revision-exercise-on-cost-and-revenue-hl-only.html" title="Revision exercise on cost and revenue (HL only)">Revision exercise on cost and revenue (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29845/unit-211-costs-revenue-and-profit-review-sheet-hl-only.html" title="Unit 2.11: Costs, revenue and profit review sheet (HL only)">Unit 2.11: Costs, revenue and profit review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44484/unit-211-multiple-choice-quiz-sl-units-1.html" title="Unit 2.11: Multiple choice quiz (SL units)">Unit 2.11: Multiple choice quiz (SL units)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29846/market-structures-hl-only-1.html" title="Market structures (HL only)">Market structures (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29981/perfect-competition-hl-only-1.html" title="Perfect competition (HL only)">Perfect competition (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24486/profit-in-perfect-competition-hl-only-1.html" title="Profit in perfect competition (HL only)">Profit in perfect competition (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21302/efficiency-in-perfect-competition-hl-only.html" title="Efficiency in perfect competition (HL only)">Efficiency in perfect competition (HL only)</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20430/monopoly-hl-only-1.html" title="Monopoly (HL only)">Monopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24529/profit-and-revenue-maximisation-in-monopoly-hl-only-1.html" title="Profit and revenue maximisation in monopoly (HL only)">Profit and revenue maximisation in monopoly (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21306/a-comparison-of-monopoly-and-perfect-competition-hl-only-1.html" title="A comparison of monopoly and perfect competition? (HL only)">A comparison of monopoly and perfect competition? (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20435/monopolistic-competition-hl-only-1.html" title="Monopolistic competition (HL only)">Monopolistic competition (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20436/oligopoly-hl-only-1.html" title="Oligopoly (HL only)">Oligopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22310/game-theory-hl-only-1.html" title="Game theory (HL only)">Game theory (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29918/unit-211-market-structures-review-sheet-hl-only-1.html" title="Unit 2.11: Market structures review sheet (HL only)">Unit 2.11: Market structures review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32337/unit-211-diagram-revision-.html" title="Unit 2.11: Diagram revision ">Unit 2.11: Diagram revision </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20480/unit-211-multiple-choice-quiz-hl-only-1.html" title="Unit 2.11: Multiple choice quiz (HL only)">Unit 2.11: Multiple choice quiz (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32425/unit-212-the-markets-inability-to-achieve-equity-hl-only-1.html" title="Unit 2.12: The market’s inability to achieve equity (HL only)">Unit 2.12: The market’s inability to achieve equity (HL only)</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../3942/unit-31-measuring-economic-activity-and-illustrating-its-variati-1.html" title="Unit 3.1: Measuring economic activity and illustrating its variations">Unit 3.1: Measuring economic activity and illustrating its variations</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20558/calculating-national-income-1.html" title="Calculating national income">Calculating national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21297/gdp-gni-as-a-measure-of-living-standards.html" title="GDP / GNI as a measure of living standards">GDP / GNI as a measure of living standards</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20567/national-income-statistics-1.html" title="National income statistics">National income statistics</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21580/the-business-cycle-1.html" title="The business cycle">The business cycle</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29931/unit-31-economic-activity-review-sheet-1.html" title="Unit 3.1: Economic activity review sheet">Unit 3.1: Economic activity review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html" title="Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29933/aggregate-demand-and-supply.html" title="Aggregate demand and supply">Aggregate demand and supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21582/components-of-aggregate-demand-1.html" title="Components of aggregate demand">Components of aggregate demand</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20634/equilibrium-in-macroeconomics-neo-classical-perspective-1.html" title="Equilibrium in macroeconomics (neo-classical perspective)">Equilibrium in macroeconomics (neo-classical perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20439/equilibrium-in-macroeconomics-keynesian-perspective-1.html" title="Equilibrium in macroeconomics (keynesian perspective)">Equilibrium in macroeconomics (keynesian perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21349/john-maynard-keynes-1.html" title="John Maynard Keynes">John Maynard Keynes</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20650/keynesian-v-free-market-debate--1.html" title="Keynesian v free market debate ">Keynesian v free market debate </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21342/changes-in-the-long-run-aggregate-supply-1.html" title="Changes in the long run aggregate supply">Changes in the long run aggregate supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30055/unit-32-aggregate-demand-and-supply-review-sheet-1.html" title="Unit 3.2: Aggregate demand and supply review sheet">Unit 3.2: Aggregate demand and supply review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20610/unit-35-and-36-demand-management-fiscal-and-monetary-policy-1.html" title="Unit 3.5 and 3.6: Demand management - fiscal and monetary policy">Unit 3.5 and 3.6: Demand management - fiscal and monetary policy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30058/government-budget.html" title="Government budget">Government budget</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21585/fiscal-policy--1.html" title="Fiscal policy ">Fiscal policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21343/multiplier-hl-only.html" title="Multiplier (HL only)">Multiplier (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21795/monetary-policy--1.html" title="Monetary policy ">Monetary policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30071/independent-central-banks-1.html" title="Independent central banks">Independent central banks</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30083/unit-35-and-36-review-sheet.html" title="Unit 3.5 and 3.6 review sheet">Unit 3.5 and 3.6 review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20615/unit-37-supply-side-policies-1.html" title="Unit 3.7: Supply side policies">Unit 3.7: Supply side policies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20651/the-role-of-supply-side-policies-1.html" title="The role of supply side policies">The role of supply side policies</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20622/market-based-and-interventionist-supply-side-policies--1.html" title="Market based and interventionist supply side policies ">Market based and interventionist supply side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39129/aggregate-demand-and-supply-crossword-1.html" title="Aggregate demand and supply crossword">Aggregate demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30086/unit-37-review-sheet-1.html" title="Unit 3.7: Review sheet">Unit 3.7: Review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20755/unit-31-32-and-35-37-multiple-choice-quiz--1.html" title="Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz ">Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz </a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../44522/unit-31-32-and-35-37-revision-quiz-1.html" title="Unit 3.1-3.2 and 3.5-3.7: Revision quiz">Unit 3.1-3.2 and 3.5-3.7: Revision quiz</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20686/unit-33-macroeconomic-objectives.html" title="Unit 3.3: Macroeconomic objectives">Unit 3.3: Macroeconomic objectives</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30118/unemployment.html" title="Unemployment">Unemployment</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21351/types-of-unemployment.html" title="Types of unemployment?">Types of unemployment?</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21593/equilibrium-unemployment-.html" title="Equilibrium unemployment ">Equilibrium unemployment </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21594/disequilibrium-unemployment-1.html" title="Disequilibrium unemployment">Disequilibrium unemployment</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30458/unemployment-review-sheet-1.html" title="Unemployment review sheet">Unemployment review sheet</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20713/inflation--1.html" title="Inflation ">Inflation </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20712/measuring-inflation-hl-only-1.html" title="Measuring inflation (HL only)">Measuring inflation (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20685/costs-of-inflation-and-deflation-1.html" title="Costs of inflation and deflation">Costs of inflation and deflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30465/inflation-review-sheet.html" title="Inflation review sheet">Inflation review sheet</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20716/unemployment-v-inflation-trade-off-hl-only-1.html" title="Unemployment v inflation trade off (HL only)">Unemployment v inflation trade off (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39133/macroeconomic-objectives-crossword-1.html" title="Macroeconomic objectives crossword">Macroeconomic objectives crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44511/unit-33-macroeconomic-indicators-revision-quiz-1.html" title="Unit 3.3: Macroeconomic indicators revision quiz">Unit 3.3: Macroeconomic indicators revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20741/unit-34-economics-of-inequality-and-poverty-1.html" title="Unit 3.4: Economics of inequality and poverty">Unit 3.4: Economics of inequality and poverty</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32398/inequality-1.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21356/the-role-of-spending-and-taxation-on-inequality--1.html" title="The role of spending and taxation on inequality ">The role of spending and taxation on inequality </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21313/consequences-of-economic-growth-1.html" title="Consequences of economic growth">Consequences of economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30257/economic-growth-and-inequality-review-sheet-1.html" title="Economic growth and inequality review sheet">Economic growth and inequality review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20756/unit-33-34-multiple-choice-.html" title="Unit 3.3-3.4: Multiple choice ">Unit 3.3-3.4: Multiple choice </a></li></ul></ul><li class="ancestor parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../21844/unit-4-global-economy.html" title="Unit 4: Global economy">Unit 4: Global economy</a></li><ul class="level-1 expanded"><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../21367/unit-41-benefits-of-international-trade.html" title="Unit 4.1: Benefits of international trade">Unit 4.1: Benefits of international trade</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30529/benefits-of-international-trade.html" title="Benefits of international trade">Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20823/absolute-and-comparative-advantage-hl-only-1.html" title="Absolute and comparative advantage (HL only)">Absolute and comparative advantage (HL only)</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20845/unit-42-43-trade-protection-1.html" title="Unit 4.2-4.3: Trade protection">Unit 4.2-4.3: Trade protection</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32419/barriers-to-trade-calculations-are-hl-only-1.html" title="Barriers to trade (calculations are HL only)">Barriers to trade (calculations are HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21610/case-study-on-tata-steel-1.html" title="Case study on Tata Steel">Case study on Tata Steel</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23455/the-defence-industry-1.html" title="The Defence industry">The Defence industry</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30610/unit-41-43-review-sheet-1.html" title="Unit 4.1-4.3: Review sheet">Unit 4.1-4.3: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20894/unit-44-economic-integration--1.html" title="Unit 4.4: Economic integration ">Unit 4.4: Economic integration </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30634/economic-integration-some-hl-tasks-1.html" title="Economic integration (some HL tasks)">Economic integration (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20840/world-trade-organisation-wto-1.html" title="World trade organisation (WTO)">World trade organisation (WTO)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30635/unit-44-review-sheet-1.html" title="Unit 4.4: Review sheet">Unit 4.4: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20853/unit-45-exchange-rates-1.html" title="Unit 4.5: Exchange rates">Unit 4.5: Exchange rates</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30611/floating-exchange-rates-1.html" title="Floating exchange rates">Floating exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../31824/fixed-managed-exchange-rate-systems-some-hl-tasks-1.html" title="Fixed / managed exchange rate systems (some HL tasks)">Fixed / managed exchange rate systems (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21624/the-market-for-foreign-exchange-1.html" title="The market for foreign exchange">The market for foreign exchange</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30614/unit-45-review-sheet-1.html" title="Unit 4.5: Review sheet">Unit 4.5: Review sheet</a></li></ul><li class="ancestor parent" style="padding-left: 14px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../20859/unit-46-balance-of-payments-1.html" title="Unit 4.6: Balance of payments">Unit 4.6: Balance of payments</a></li><ul class="level-2 expanded"><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30624/balance-of-payments--1.html" title="Balance of payments ">Balance of payments </a></li><li class="current" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="current-account-hl-only-1.html" title="Current account (HL only)">Current account (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20872/the-marshall-lerner-condition-j-curve-hl-only-1.html" title="The Marshall-Lerner condition / J curve (HL only)">The Marshall-Lerner condition / J curve (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20899/units-41-46-multiple-choice-quiz--1.html" title="Units 4.1-4.6: Multiple choice quiz ">Units 4.1-4.6: Multiple choice quiz </a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../42989/unit-41-46-multiple-choice-quiz-ii-1.html" title="Unit 4.1-4.6: Multiple choice quiz II">Unit 4.1-4.6: Multiple choice quiz II</a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../39438/unit-41-46-international-trade-crossword-1.html" title="Unit 4.1-4.6: International trade crossword">Unit 4.1-4.6: International trade crossword</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32423/unit-47-sustainable-development--1.html" title="Unit 4.7: Sustainable development ">Unit 4.7: Sustainable development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26092/water-scarcity-activity-1.html" title="Water scarcity activity">Water scarcity activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32426/sustainable-development.html" title="Sustainable development">Sustainable development</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20928/unit-48-measuring-development--1.html" title="Unit 4.8: Measuring development ">Unit 4.8: Measuring development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30686/measuring-development-1.html" title="Measuring development">Measuring development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21627/economic-development--1.html" title="Economic development ">Economic development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30679/unit-47-48-review-sheet.html" title="Unit 4.7-4.8: Review sheet">Unit 4.7-4.8: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 4.9: Barriers to development">Unit 4.9: Barriers to development</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30727/barriers-to-development-in-international-trade-1.html" title="Barriers to development in International trade">Barriers to development in International trade</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32430/unit-410-economic-growth-andor-economic-development-strategies-1.html" title="Unit 4.10: Economic growth and/or economic development strategies">Unit 4.10: Economic growth and/or economic development strategies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30687/the-role-of-domestic-factors-1.html" title="The role of domestic factors">The role of domestic factors</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30688/the-role-of-international-trade-and-development-1.html" title="The role of international trade and development">The role of international trade and development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30689/the-role-of-foreign-direct-investment-fdi-1.html" title="The role of foreign direct investment (FDI)">The role of foreign direct investment (FDI)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25240/the-role-of-foreign-aid--1.html" title="The role of foreign aid ">The role of foreign aid </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30819/multilateral-development-assistance-1.html" title="Multilateral development assistance">Multilateral development assistance</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21632/the-role-of-international-debt-1.html" title="The role of international debt">The role of international debt</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25242/the-balance-between-markets-and-intervention-1.html" title="The balance between markets and intervention">The balance between markets and intervention</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30926/unit-49-410-review-sheet.html" title="Unit 4.9 - 4.10: Review sheet">Unit 4.9 - 4.10: Review sheet</a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21380/assessment.html" title="Assessment">Assessment</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Internal assessment ">Internal assessment </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20608/how-to-write-your-ia-student-handout.html" title="How to write your IA? 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(student handout)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21428/how-to-interpret-the-assessment-criteria-1.html" title="How to interpret the assessment criteria?">How to interpret the assessment criteria?</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Grading practise ">Grading practise </a></li><ul class="level-3 "><li class=" parent" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Sample 3a">Sample 3a</a></li><ul class="level-4 "><li class="" style="padding-left: 56px"><i class="expander fa fa-caret-right "></i><a class="" href="../32083/sample-3b-1.html" title="Sample 3b">Sample 3b</a></li></ul></ul></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32022/assessment-markbands-1.html" title="Assessment markbands">Assessment markbands</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../4332/exam-style-questions.html" title="Exam style questions">Exam style questions</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Paper 1 style examination questions">Paper 1 style examination questions</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../40100/unit-211-212-questions.html" title="Unit 2.11-2.12 questions">Unit 2.11-2.12 questions</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../45102/paper-1-guidance-on-essay-writing-1.html" title="Paper 1 guidance on essay writing">Paper 1 guidance on essay writing</a></li></ul></ul></nav> </div> </div> </div> </div><div style="margin-top: 20px;"><style type="text/css">
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<div id="main-column" class="span9"> <article id="current-account-hl-only" style="margin-top: 16px;">
<h1 class="section-title">Current account (HL only)</h1>
<ul class="breadcrumb"><li><a title="Home" href="../../../economics.html"><i class="fa fa-home"></i></a><span class="divider">/</span></li><li><span class="gray">Unit 4: Global economy</span><span class="divider">/</span></li><li><a title="Go to: Unit 4.6: Balance of payments" href="../20859/unit-46-balance-of-payments-1.html">Unit 4.6: Balance of payments</a><span class="divider">/</span></li><li><span class="active">Current account (HL only)</span></li></ul>
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<h2><img alt="" src="../../../ib/economics/images/international-trade-2/devaluation_of_currency.jpg" style="width: 320px; height: 131px; float: left;">Introduction</h2><p>This lesson looks at the consequences of a current account deficit or surplus and includes a discussion point on the consequences of the Chinese current account surplus, as well as the US equally large current account deficit. This lesson also focuses on the options available to a government or central bank as they attempt to solve a current account deficit. </p><hr class="hidden"><div class="blueBg"><h3>Enquiry question</h3><p>What are the consequences for a persistent current account surplus / deficit. Evaluate the effectiveness of government policies aimed at reducing the size of a nation's current account deficit / surplus.</p></div><div class="blueBg"><p><strong>Lesson time: </strong>150 minutes</p><p><img alt="" src="../../../ib/economics/images/international-trade-2/44009947-air-cargo-concept-as-a-metal-transport-container-being-lifted-with-a-group-of-birds-as-a-surreal-del-stock-photo.jpg" style="width: 320px; height: 320px; float: right;" title="http://www.economywatch.com/"><strong>Lesson objectives:</strong></p><p>Explain why a deficit in the current account of the balance of payments may result in downward pressure on the exchange rate of the currency. Why might a surplus in the current account result in upward pressure on the exchange rate of the currency. (HL only)</p><p>Discuss the implications of a persistent current account deficit, referring to factors foreign ownership of domestic assets, exchange rates, interest rates, indebtedness, international credit ratings and demand management. (HL only)</p><p>Explain the methods that a government can use to correct a persistent current account deficit, including expenditure switching policies, expenditure reducing policies and supply-side policies, to increase competitiveness. (HL only)</p><p>Evaluate the effectiveness of the policies to correct a persistent current account deficit. (HL only)</p><p>Discuss the possible consequences of a rising current account surplus, including lower domestic and investment, as well as the appreciation of the domestic currency and reduced export competitiveness. (HL only)</p><p><strong>Teacher notes:</strong></p><p><span style="color:#FF0000;"></span></p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>1.</strong> <strong>Beginning activity </strong>- begin with the opening question and then discuss this as a class. (Allow 10 minutes in total)</span></p><p><span style="color:#FF0000;"><strong>2.</strong> <strong>Processes</strong> -<strong> technical vocabulary </strong>-<strong> </strong>the students can learn the background information from the videos, activities and the list of key terms. (10 minutes)</span></p><p><span style="color:#FF0000;"><strong>3. Applying the theory</strong> - activity 2 applies the theory of current account / surpluses to exchange rates. (10 minutes)</span></p><p><span style="color:#FF0000;"><em><strong>HL only activities:</strong></em></span></p><p><span style="color:#FF0000;"><strong>4. Developing the theory</strong> - activities 4 - 6 develop the theory, considering the consequences of a current account deficit or surplus. (15 minutes)</span></p><p><span style="color:#FF0000;"><strong>5. Applying the theory</strong> - activities 7 - 8 applying the theory to USA and China, two nations at opposite sides of the international trading situation. (15 minutes)</span></p><p><span style="color:#FF0000;"><strong>6. Link to assessment </strong>- activity 9 is a paper two type question on Turkey. (70 minutes if completed in entirety).</span></p></section></div><div class="greenBg"><h4><em>Key terms:</em></h4><p><img alt="" src="../../../ib/economics/images/international-trade-2/4000.jpg" style="width: 320px; height: 192px; float: left;"><strong>Current account</strong> - the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. This is made up of the visible trade balance, the invisible trade balance, net factor income from abroad and current transfers.</p><p><strong>Current account deficit</strong> - when a country imports more goods, services, and capital than it exports. It encompasses the trade deficit plus capital, net income and transfer payments.</p><p><strong>Current account surplus </strong>- when a country exports more goods, services, and capital than it imports. It encompasses the trade surplus plus capital, net income and transfer payments. </p><p><strong>Expenditure switching policies</strong> - policies aimed at diverting spending away from imported goods and services towards domestically produced goods, services and export products, e.g. competitive devaluations and trade barriers such as tariffs, quotas or administrative barriers.</p><p><strong>Expenditure reducing policies </strong>- policies aimed at reducing demand in the economy and therefore limiting domestic spending on imports, e.g contractionary fiscal and / or monetary policies designed to reduce AD in the economy.</p><p><strong>Supply-side measures</strong> - long term policies that might be effective in reducing a persistent current account deficit include economic reforms aimed at improving macroeconomic stability, investments in human capital and increasing competitiveness in fast-growing, high value industries such as bio-technology, engineering, finance and medicine. </p></div><p><em>The activities on this page are available as a PDF at:</em><a href="../../../media/ib/economics/files/international-trade/current-account.pdf.html" target="_blank" title="Activities"> <img class="ico" src="../../../thinkib/icons/activities.png"> Current account </a></p><div class="pinkBg"><h4><strong>Activity 1</strong></h4><p><em>The following countries enjoy the world's largest current account surpluses:</em></p><p>China, Germany, Japan, South Korea, Netherlands.</p><p>The nations with the largest current account deficits are USA, UK, Brazil, Australia, Canada.</p><p><em>This is illustrated as follows:</em></p><table border="3" cellpadding="0" cellspacing="0"><tbody><tr><td style="text-align: center;"><strong>Nation </strong></td><td style="text-align: center;"><strong>Current account surplus / deficit (billion $)</strong></td><td style="text-align: center;"><strong>The manufacturing sector as a % of GDP </strong></td><td style="text-align: center;"><strong>The tertiary sector as a % of GDP </strong></td></tr><tr><td style="text-align: center;">China</td><td style="text-align: center;">293,200</td><td style="text-align: center;">40.5%</td><td style="text-align: center;"><span style="background-color: rgb(248, 249, 250);">50.5%</span></td></tr><tr><td style="text-align: center;">Germany</td><td style="text-align: center;">285,200</td><td style="text-align: center;"><span style="color: rgb(0, 0, 0); font-family: sans-serif; font-size: 14px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(248, 249, 250); display: inline !important; float: none;">28.1%</span></td><td style="text-align: center;">71.1%</td></tr><tr><td style="text-align: center;">Japan</td><td style="text-align: center;">137,500</td><td style="text-align: center;">27.5%</td><td style="text-align: center;">71.4%</td></tr><tr><td style="text-align: center;">South Korea</td><td style="text-align: center;">105,900</td><td style="text-align: center;">39.8%</td><td style="text-align: center;">57.5%</td></tr><tr><td style="text-align: center;">Netherlands</td><td style="text-align: center;">80,990</td><td style="text-align: center;">24.1%</td><td style="text-align: center;">73.2%</td></tr><tr><td style="text-align: center;">Canada</td><td style="text-align: center;">(51,380)</td><td style="text-align: center;">28.6%</td><td style="text-align: center;">69.6%</td></tr><tr><td style="text-align: center;">Australia</td><td style="text-align: center;">(56,200)</td><td style="text-align: center;">26.6%</td><td style="text-align: center;">69.4%</td></tr><tr><td style="text-align: center;">Brazil</td><td style="text-align: center;">(58,910)</td><td style="text-align: center;">27.4%</td><td style="text-align: center;">67.2%</td></tr><tr><td style="text-align: center;">UK</td><td style="text-align: center;">(123,500)</td><td style="text-align: center;">21%</td><td style="text-align: center;">78.3%</td></tr><tr><td style="text-align: center;">USA</td><td style="text-align: center;">(484,100)</td><td style="text-align: center;">19.1%</td><td style="text-align: center;">79.7%</td></tr></tbody></table><p> Suggest possible reason for this?</p></div><section class="tib-hiddenbox"><p><strong>Hint:</strong></p><p><span style="color:#FF0000;">The reasons are not entirely clear. All ten nations, or at least nine of them are wealthy successful nations so this cannot be an explanation. A significant difference however is in the role of manufacturing within each nations. The nations with the largest current account surpluses have significant manufacturing sectors. By contrast those with significant deficits have relatively small manufacturing sectors. The UK and USA, with the largest deficits by far, have very small relative manufacturing sectors. Their wealth comes from the success of their financial and service sectors and surely it is easier to export a manufactured good than a service? In other words a large tertiary sector can provide significant wealth to a nation but it is a difficult sector to sell around the world.</span></p></section><div class="pinkBg"><h4><strong><img alt="" src="../../../ib/economics/images/international-trade/currency-in-equlibrium-1.jpg" style="width: 320px; height: 320px; float: right;">Activity 2: The effect of a current account deficit / surplus on exchange rate</strong></h4><p>(a) The diagram to the right illustrates the market for $, relative to the Chinese Yuan in equilibrium. Illustrate the impact of a significant rise in imported goods and services into the USA, as well as a fall in exports to China.</p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/international-trade/currency-in-equlibrium-2.jpg" style="width: 320px; height: 320px;"></p><p><span style="color:#FF0000;">The rise in import levels in the country would be represented by a rise in the supply of the currency, as the nation will have to place more of its currency on financial markets in order to purchase the foreign currency that it requires to import the goods and services that it needs.</span></p><p><span style="color:#FF0000;">The fall in exports would be represented by a fall in demand for $ because Chinese consumers must first purchase $ before buying goods and services from the US. </span> </p></section><p>(b) Use your answer for (a) to explain how a deficit on a nation's current account is likely to impact on the market for a nation's currency?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><span style="color:#FF0000;">A current account deficit will result in downward pressure on the exchange rate of a nation and unless the nation also enjoys a similar sized surplus in its financial and capital accounts, the currency is likely to depreciate, illustrated on the diagram by <span style="color:#FF0000;"><span style="color:#FF0000;">(P1 - P2).</span></span></span></span></p></section><p>(c) Will a persistent deficit on the current account have a greater impact on a fixed exchange rate or a floating one?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Downward pressure on a nation's exchange rate will have a greater impact on a nation with a fixed exchange rate because this implies that the exchange rate is set at too high a level. Unless the nation also has a similar surplus, in its financial and capital accounts, the central bank will shortly run out of foreign currency reserves.</span></p></section><p>(d) On a demand and supply diagram illustrate the impact on the market for $s if the nation experiences a rise in demand for its exports and a fall in demand for the goods and services that it imports from overseas.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><img alt="" src="../../../ib/economics/images/international-trade/currency-in-equlibrium-3.jpg" style="width: 320px; height: 320px; float: right;">The fall in import levels in the country would be represented by a fall in the supply of the currency (S1$ - S2$), as the nation will have to place less of its currency on financial markets in order to purchase the foreign currency that it requires to import the goods and services that it needs.</span></p><p><span style="color:#FF0000;">The rise in exports would be represented by a rise in demand for $ because overseas consumers must first purchase the $ before buying goods and services from the US. </span> </p></section><p>(e) Using your answer for (d) explain how a long term surplus in a nation's current account will affect the currency value for a nation with a floating exchange rate system?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A current account surplus will result in upward pressure on the exchange rate of a nation and unless the nation also enjoys a similar sized deficit in its financial and capital accounts, the currency is likely to appreciate in value. This is illustrated on the diagram by a rise in the price of the $ from P1 to P2.</span></p></section><p>(f) Explain the likely impact of a nation with a fixed exchange rate that enjoys persistent current account surpluses over a period of time?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">In a fixed exchange rate system a persistent surplus implies that the currency has been set at too low a value. In the short run the central bank can balance this out with a deficit in the financial and capital accounts. Long term, however, the government of this nation is likely to face pressure from over nations to raise its currency value, who may feel that the country is gaining an unfair advantage from an under valued currency. For those IB students who followed the American election campaign of 2017 this was a recurring theme of Donald Trump, who accused both China and Germany of benefiting unfairly from an undervalued currency.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 3: Why has the US trade deficit with China not resulted in a revaluation of the Y and US$?</strong></h4><p>Watch the following short video and then summarise the findings.</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/cg17YTtsk2U" width="640"></iframe></p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">As the video highlights, the US has a large persistent trade imbalance with China. This is balanced out by an equally large capital and financial account surplus. In other words the Chinese government takes the US $s that it acquires from its current account surplus and uses them to purchase financial assets in the US - without this the US would be forced to take extensive corrective measures which might hurt both nations.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 4: The consequences of a current account deficit </strong></h4><p>When a nation has a significant current account deficit then this will have to be financed by a surplus on the capital account. </p><p><em>By each measure explain the weakness of the policy:</em></p><p>1. The central bank can boost the funds in its capital account by using the currency reserves that the central bank holds. </p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">At some point those reserves will run out no matter how wealthy that nation is. </span></p></section><p>2. Finance the current account deficit by borrowing from overseas banks or financial institutions. </p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">This is unsustainable long term as the loans will eventually need to be repaid and furthermore the loan repayments will add to the debits on the nation's finances.</span></p></section><p>3. Hot money flows, attracted by high interest rates. </p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">The policy leads to lower levels of consumer demand and investment in the domestic economy. </span></p></section><p>4. Sale of domestic assets e.g. shares in private companies or purchases of assets such as housing. Cities such as central London, Vancouver, Los Angeles and Manhattan have seen significant numbers of overseas buyers.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Such a policy can push up the prices of expensive high end property in certain areas. Such a policy also leaves those nations vulnerable to overseas investors suddenly pulling their investment out of the country, should their priorities change. </span></p></section></div><div class="pinkBg"><h4><strong>Activity 5: The consequences of a current account surplus </strong></h4><p>What problems (if any) might a significant current account surplus present for a nation?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Other nations may decide to impose a tariff barriers or other protectionist measures on the nation with the surplus, e.g. Donald Trump's sanctions on China.</span></p><p><span style="color:#FF0000;">Nations with a sustained current account surplus, over a period of time, are likely to see upward pressure on the value of their currency, which may reduce international competitiveness. </span></p></section></div><div class="pinkBg"><h4><strong><img alt="" src="../../../ib/economics/images/macro-economics/demand-deficit-unemployment.jpg" style="width: 300px; height: 300px; float: right;">Activity 6: Methods for correcting a persistent current account deficit </strong></h4><div><p>Economists divide policies aimed at correcting a persistent current account deficit into two types: expenditure switching and expenditure reducing policies.</p><p><strong>Expenditure switching policies</strong> e.g. diverting spending away from imported goods and services and towards domestically produced goods and services and export products. <em>Examples include: </em></p><ul><li>a depreciation or devaluation of the nations currency</li><li>protectionist measures including tariffs, quotas or administrative barriers.</li></ul><p><strong>Expenditure reducing policies </strong>e.g. contractionary fiscal and / or monetary policies aimed at reducing aggregate demand in the economy. </p><p>(a) Describe some of the weaknesses of the above policies</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>Expenditure switching policies </strong></span></p><p><span style="color:#FF0000;">Competitive devaluations are likely to reduce demand for imported goods and services but will increase cost push inflationary pressures on the economy. Governments are also reluctant to impose protectionist measures on foreign products for fear of retaliation by other nations. Such policies are also in breach of WTO agreements or the rules of free trade agreement that a nation may be part of. <strong> </strong></span></p><p><span style="color:#FF0000;"><strong>Expenditure reducing policies </strong><strong> </strong></span></p><p><span style="color:#FF0000;">May be very unpopular politically. Higher interest rates will increase a household's mortgage payments, credit card and other loan repayments and reduce economic activity.</span></p></section><p>(b) Explain which supply side policies a government might employ to improve the competitiveness of its products long term?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">This includes economic reforms aimed at improving macroeconomic stability so that the nation is more attractive to inward investment, long term investment policies designed to raise productivity in the economy and diverting resources towards improving human capital and increasing competitiveness in fast-growing, high value industries such as bio-technology, engineering, finance and medicine. </span></p></section></div></div><div class="pinkBg"><h4><strong>Activity 7: A focus on the USA </strong></h4><p>The USA has the largest current deficits on the planet, by far, importing more goods and services than it exports over a number of decades. Watch the following 9 minute video about the US's trading position and then answer the questions which follow:</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/6BsR4anKH8g" width="640"></iframe></p><p>(a) Why is the USA's trade deficit so significant?</p><section><section class="tib-hiddenbox"><p><span style="color:#FF0000;">As both videos describe the US, once an industrial powerhouse, is no longer a major manufacturing nation and so exports comparatively few products for a successful nation. By contrast the thriving financial and service sectors mean that disposable incomes are high and therefore demand for foreign goods and services remains strong. </span></p></section></section><p>(b) Should the US be concerned about the state of its net exports?</p><section><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Yes and no, while the commentator featured in the first video states that the USA's trading position is a significant cause for concern, some economists disagree. For example as the video highlights the main beneficiaries are not necessarily China but Wall Street and the American consumer, who benefits from cheap products, sometimes subsidised by the Chinese government, who provide subsidies for Chinese exporting businesses. </span></p></section></section><p>(c) What if anything can the US government do to reduce the size of their current account deficit?</p><section><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Very little at least in the short term as the US is no longer an industrial power house. Of all the G7 countries the USA has the lowest % of output taken by the secondary sector. While the new president believes that he can fix America's trade problems by imposing tariffs on imported goods and services this may not be so easy. </span></p></section></section><p>(d) Will leaving the TPP change the US's trading position?</p><section><section class="tib-hiddenbox"><p><span style="color:#FF0000;">This is very hard to say and possibly yes as two of the USA's biggest trade deficits are with other TPP members - Japan and Mexico. However, trade with some TPP members is broadly equal or perhaps even slightly in surplus. Furthermore, some of America's biggest deficits are with Germany and China who would not be affected by America leaving the TPP.</span></p></section></section><p>(e) So how will America's trade deficit be resolved? Will it ever be resolved.</p><section><span style="color:#FF0000;"></span><section class="tib-hiddenbox"><p><span style="color:#FF0000;"></span><span style="color:#FF0000;">This is unclear and certainly while nations such as China are prepared to bank roll the US deficit then there is no immediate end in sight to the US's trade position.</span></p><p><span style="color:#FF0000;"></span></p></section><span style="color:#FF0000;"> </span></section></div><div class="pinkBg"><h4><img alt="" src="../../../ib/economics/images/international-trade-2/sp-cut-china-moqiypbfq60dn65cq8f6av7mp15scko9rwarxpjyp8.jpg" style="width: 320px; height: 152px; float: left;" title="image: http://tradetipper.com/china-outlook"><strong>Activity 8: A focus on China </strong></h4><p>An example of a country with a large current account surplus is China, which has built up large current account surpluses with most nations that it trades with. As a consequence of this surplus the Chinese central bank has built up large quantities of foreign currency - particularly US $ and Euros. To prevent the Chinese Yuan from rising the central bank uses their excess currency to purchase premium assets in the western world. This includes high end property as well as western businesses. China is also a significant lender of foreign currency loans to banks and western governments. </p><p><strong>What consequences might this have for the following:</strong></p><p>China</p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/international-trade-2/export(1).jpg" style="width: 320px; height: 197px; float: right;" title="image: http://blogs.reuters.com/india-expertzone"><span style="color:#FF0000;">By purchasing foreign assets China is preventing its currency from rising in value. This policy will be difficult to maintain over a long time period because many of those assets are already generating profits which then get repatriated, further adding to China's current account surplus. </span></p><p><span style="color:#FF0000;">Other consequences may well be that China's trading partners simply get tired of such an unequal trading relationship and start to impose taxes and or tariffs on Chinese products. </span></p><p><span style="color:#FF0000;">Unrest may also appear domestically from Chinese citizens who may wonder why all of their hard work and global domination of so many markets, has not led to comparable material improvements in their standard of living. </span></p></section><p>Western nations with large current account deficits</p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/international-trade-2/gold-re-l.jpg" style="width: 320px; height: 213px; float: left;" title="http://www.financialexpress.com/"><span style="color:#FF0000;">The current account deficit's of western nations have reached staggering levels. In 2015, for instance, USA recorded a current account deficit of $ 365.7 billion. Imports from China stood at $ 481.9 billion while exports to the country were just $116.7 billion. This was all financed by debt (which China owns a significant part of) as well as Chinese purchases of American assets. As this trend rises the current account deficit with China will widen further and the demand for US and European assets will continue to rise.</span></p><p><span style="color:#FF0000;">Nationalist governments in both continents may well see an opportunity to gain support by promising to reign in China's increasing influence. At some point too, America and the remainder of China's trading partners may have to start paying back more of the money borrowed. Can China really keep financing America's deficit indefinitely?</span></p></section></div><p>Further reading on this topic is available at:<a href="../../../media/ib/economics/files/international-trade/who-owns-usas-debt.pdf.html" target="_blank" title="Key study"> <img class="ico" src="../../../thinkib/icons/key-study.png"> Who owns USA's debt?</a></p><div class="blueBg"><h4><strong>Activity 9: Link to the assessment (HL only) </strong></h4><p><strong><span style="color:#0000CD;"></span></strong><span style="color:#000080;"><em>In March 2018, Turkey's 12-month rolling current account deficit stood at $53.3 billion, according to the Bank’s report on balance of payments.</em> Source: <a href="http://www.hurriyetdailynews.com/turkeys-current-account-deficit-widens-by-1-6-billion-in-february-130112">Dai</a></span><span style="color:#000080;"><a href="http://www.hurriyetdailynews.com/turkeys-current-account-deficit-widens-by-1-6-billion-in-february-130112">ly Hurriyet</a></span><strong><span style="color:#0000CD;"></span></strong></p><p><strong>Typical paper two examination questions:</strong></p><p>(a) Define the following terms:</p><p>i. current account deficit. (line 3) <em>[2 marks]</em></p><section class="tib-hiddenbox"><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>A vague response indicating that it is when import revenues > export revenues.</p></td><td style="width:63px;"><p align="center">1</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>An accurate definition that it occurs when the flow of funds into the country, resulting from trade in goods and services, net flows of income plus other net transfers of funds is smaller than the flow of funds leaving the country. </p></td><td style="width:63px;"><p align="center">2</p></td></tr></tbody></table></section><p>ii. 'hot money flows'. <em>[2 marks]</em></p><section class="tib-hiddenbox"><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>The idea that it relates to investors investing their money in foreign bank accounts.</p></td><td style="width:63px;"><p align="center">1</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>An accurate definition that hot money flows refers to capital flows from international investors, hoping to make substantial gains from moving money into countries offering high interest rates.</p></td><td style="width:63px;"><p align="center">2</p></td></tr></tbody></table></section><p><em>(b) i. Calculate the change in the size of the current account deficit and the value of the TL to the US$ between 2016 and 2018. </em><em>[</em><em>3</em><em> marks]</em></p><section class="tib-hiddenbox"><p><em>Current account deficit change (53.3 – 26.6) / 26.6 = 103.76%</em></p><p><em>Currency devaluation (6.13 – 3.37) / 3.37 x 100 = 81.90%</em></p><p><em>Mark as 2+2 (maximum marks 3)</em></p></section><p><em>ii. State two of the components of a nation’s balance of payments. </em><em>[2 marks]</em></p><section class="tib-hiddenbox"><ul><li><em>Current account</em></li><li><em>Capital account</em></li></ul><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>A response that includes one of the above</p></td><td style="width:63px;"><p align="center">1</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>A response that includes both of the above</p></td><td style="width:63px;"><p align="center">2</p></td></tr></tbody></table></section><p>(c) Explain using an exchange rate diagram how a persistent current account deficit might impact on Turkey's exchange rate. <em>[4 marks]</em></p><section class="tib-hiddenbox"><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>For a response that explains that a persistent deficit on the current account is likely to experience downward pressure on the value of it's currency, as the number of people purchasing the currency to buy its exports will be lower than supply <strong>OR</strong> a diagram showing a fall in the TL resulting from either a fall in demand for TL and / or a rise in supply of TL</p></td><td style="width:63px;"><p align="center">1-2</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>For a response that explains that a persistent deficit on the current account is likely to experience downward pressure on the value of it's currency, as the number of people purchasing the currency to buy its exports will be lower than supply <strong>AND</strong> a diagram showing a fall in the TL resulting from either a fall in demand for TL and / or a rise in supply of TL</p></td><td style="width:63px;"><p align="center">3-4</p></td></tr></tbody></table><p>Axis should be labelled price of TL/$ or P and Quantity of TL, quantity or Q</p></section><p>(d) What policies might the Turkish government employ to reduce the size of its current account deficit in the short run. <em>[4 marks]</em></p><section class="tib-hiddenbox"><p>Examples of relevant policies include, but are not restricted to:</p><ul><li>competitive devaluations (expenditure switching policies)</li><li>import barriers (expenditure switching policies)</li><li>contractionary fiscal or monetary policy (expenditure reducing policies)</li></ul><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>For a response that includes <strong>either</strong> expenditure switching <strong>or</strong> expenditure reducing policies</p></td><td style="width:63px;"><p align="center">1-2</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>For a response that includes expenditure switching <strong>AND</strong> expenditure reducing policies</p></td><td style="width:63px;"><p align="center">3-4</p></td></tr></tbody></table></section><p><em>(e) Suggest </em><em><strong>two </strong></em><em>reasons why Turkey’s current account deficit continues to grow despite the depreciation in the Turkish Lira</em><em>. </em><em>[4 marks]</em></p><section class="tib-hiddenbox"><p>Explanations might include:</p><ul><li>Marshall-Lerner condition i.e. the combined price elasticity of Turkey’s imports and exports are greater than 1</li><li>The increase in export competitiveness has been eroded by higher rates of cost push inflation.</li></ul><p>Other explanations may be relevant.</p><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>For a response that includes <strong><em>one</em> </strong>relevant reason</p></td><td style="width:63px;"><p align="center">1-2</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>For a response that includes <strong><em>two</em></strong> relevant reasons</p></td><td style="width:63px;"><p align="center">3-4</p></td></tr></tbody></table></section><p>(f) Illustrate using an appropriate diagram why higher central bank interest rates might arrest the decline in the value of the Turkish Lira? <em>[4 marks]</em></p><section class="tib-hiddenbox"><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:47px;"><p align="center"><strong>Level</strong></p></td><td style="width:491px;"><p><strong>Descriptor</strong></p></td><td style="width:63px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:47px;"><p align="center">0</p></td><td style="width:491px;"><p>The work does not reach any of the standard described below</p></td><td style="width:63px;"><p align="center">0</p></td></tr><tr><td style="width:47px;"><p align="center">1</p></td><td style="width:491px;"><p>For an accurate diagram showing the supply and demand for the Turkish Lira, with a left shift supply and / or a right shift in demand for the Lira <strong>OR </strong>an explanation that following the rise in interest rates fewer Turkish people will choose to purchase overseas assets (hence the fall in supply) and more overseas citizens will place their savings in Turkish banks (hence the rise in demand for the TL).</p></td><td style="width:63px;"><p align="center">1-2</p></td></tr><tr><td style="width:47px;"><p align="center">2</p></td><td style="width:491px;"><p>For an accurate diagram showing the supply and demand for the Turkish Lira, with a left shift supply and / or a right shift in demand for the Lira <strong>AND </strong>an explanation that following the rise in interest rates fewer Turkish people will choose to purchase overseas assets (hence the fall in supply) and more overseas citizens will place their savings in Turkish banks (hence the rise in demand for the TL).</p></td><td style="width:63px;"><p align="center">3-4</p></td></tr></tbody></table><p>Mark as 2 (diagram) + 2 (explanation). Incorrectly labelled diagrams can be rewarded with a maximum of 1. Suitable labels include: Price; P; price of TL or Price of TL / US$. The X axis should be labelled Q; quantity or quantity of TL.</p></section><p>(g) Using your knowledge of economics, discuss the consequences for the Turkish economy of a persistent current account deficit. <em>[</em><em>15</em><em> marks]</em></p><section class="tib-hiddenbox"><p><strong>Command term: Discuss</strong></p><p>In answering this question, candidates need to consider a range of arguments, factors, or hypotheses, supported by appropriate evidence.</p><p><em>Key term to define - current account deficit</em>.</p><p><em>Examples of consequences include:</em></p><ul><li>A recognition that the long term deficit of Turkey is likely to be structural and therefore cannot be resolved by short term measures such as devaluation or central bank intervention.</li><li>A recognition that any deficit on the current account will need to be financed by a surplus on the financial / capital account. This is likely to lead to the accumulation of more debt or increased foreign ownership of domestic assets.</li><li>Without significant surpluses in the nation's capital account, which might be difficult for Turkey to access, the exchange rate is likely to devalue resulting in cost push inflationary pressures and a squeeze on real incomes.</li><li>The deficit may also reduce the ability of the central bank to manage its monetary policy, for instance the central bank may be forced to raise interest rates to reduce the deficit, with negative impacts on other macroeconomic indicators.</li><li>Similarly, the government may be forced to implement contractionary fiscal policies to reduce the size of the deficit, again impacting on economic growth and employment.</li><li>A persistent current account deficit is likely to lead to a central banks foreign reserves being depleted.</li></ul><p><strong>Responses for question (g) should be graded according to the following mark bands:</strong></p><table border="0" cellpadding="0" cellspacing="0" width="601"><tbody><tr><td style="width:510px;"><p><strong>Criteria</strong></p></td><td style="width:91px;"><p align="center"><strong>Mark</strong></p></td></tr><tr><td style="width:510px;"><p>There is no clear policy answer to the question but some limited:</p><ul><li>Appropriate policy</li><li>Use of economic terms</li><li>Application of economic theory</li><li>Use of information from the text to support the recommendation</li><li>Evaluation / balance</li></ul></td><td style="width:91px;"><p align="center">1-2</p></td></tr><tr><td style="width:510px;"><p>There is a policy answer to the question with limited:</p><ul><li>Appropriate policy</li><li>Use of economic terms</li><li>Application of economic theory to support the recommendation</li><li>Evaluation / balance</li></ul></td><td style="width:91px;"><p align="center">3-4</p></td></tr><tr><td style="width:510px;"><p>There is a clear policy answer to the question with satisfactory:</p><ul><li>Appropriate policy</li><li>Use of economic terms</li><li>Application of economic theory</li><li>Use of information from the text to support the recommendation</li><li>Evaluation / balance</li></ul></td><td style="width:91px;"><p align="center">5-6</p></td></tr><tr><td style="width:510px;"><p>There is a clear policy answer to the question with good:</p><ul><li>Appropriate policy</li><li>Use of economic terms</li><li>Application of economic theory</li><li>Use of information from the text to support the recommendation</li><li>Evaluation / balance</li></ul></td><td style="width:91px;"><p align="center">7-8</p></td></tr><tr><td style="width:510px;"><p>There is a clear policy answer to the question with excellent:</p><ul><li>Appropriate policy</li><li>Use of economic terms</li><li>Application of economic theory</li><li>Use of information from the text to support the recommendation</li><li>Evaluation / balance</li></ul></td><td style="width:91px;"><p align="center">9-10</p></td></tr></tbody></table></section></div><p>The case study is available as a PDF file at: <a href="../../../media/ib/economics/files/international-trade/turkey-p2-question.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Turkish Lira</a></p><p>Mark scheme <a href="../../../media/ib/economics/files/international-trade/turkey-current-account-mark-scheme.pdf.html" target="_blank" title="Questions"><img class="ico" src="../../../thinkib/icons/question.png"> Markscheme</a> </p><script>document.querySelectorAll('.tib-teacher-only').forEach(e => e.remove());</script>
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