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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="ancestor parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </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="../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="ancestor parent" style="padding-left: 14px"><i class="expander fa fa-caret-right fa-rotate-90"></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 expanded"><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="current" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="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=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></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 "><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=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></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 "><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="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21386/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? (student handout)">How to write your IA? (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="components-of-aggregate-demand" style="margin-top: 16px;">
<h1 class="section-title">Components of aggregate demand</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 3: Macroeconomics </span><span class="divider">/</span></li><li><a title="Go to: Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a><span class="divider">/</span></li><li><span class="active">Components of aggregate demand</span></li></ul>
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<h2><img alt="" src="../../../ib/economics/images/macro-economics/6584737f754dbea68689375c4f32a181b0770051-1475567819-57f360cb-620x348.jpg" style="width: 320px; height: 179px; float: left;" title="image: http://www.timesofmalta.com">Introduction</h2><p>This section looks at the components of aggregate demand and how changes in one or more of the components - C, G, I or (X-M) will change the level of aggregate demand.</p><hr class="hidden"><div class="blueBg"><h3>Enquiry question</h3><p>What are the components of aggregate demand and how changes in one or more of the components - C, G, I or (X-M) will change the level of aggregate demand.</p></div><div class="blueBg"><p><strong>Lesson time: </strong>85 minutes</p><p><img alt="" src="../../../ib/economics/images/macro-economics-2/im_from_the_government_im_here_to_help.jpg" style="width: 320px; height: 247px; float: right;"><strong>Lesson objectives:</strong></p><p>Explain how the AD curve can be shifted by changes in consumption due to factors including changes in consumer confidence, interest rates, wealth, personal income taxes (and hence disposable income) and level of household indebtedness.</p><p>Explain how the AD curve can be shifted by changes in government spending due to factors including political and economic priorities.</p><p>Explain how the AD curve can be shifted by changes in investment due to factors including interest rates, business confidence, technology, business taxes and the level of corporate indebtedness.</p><p>Explain how the AD curve can be shifted by changes in net exports due to factors including the income of trading partners, exchange rates and changes in the level of protectionism.</p><p><strong>Teacher notes:</strong></p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>1.</strong> <strong>Beginning activity </strong>- begin with the opening activity and allow 15 minutes for your classes to complete this and discuss it. </span></p><p><span style="color:#FF0000;"><strong>2.</strong> <strong>Processes</strong> -<strong> technical vocabulary </strong>-<strong> </strong>the students can learn the key concepts through the handout containing the activities. Allow 25 minutes to go these activities and discuss. </span></p><p><span style="color:#FF0000;"> <strong>3. TOK </strong>- activity 8 contains two short questions which asks students to consider the relationship between wealth / perception of wealth and income (10 minutes)</span></p><p><span style="color:#FF0000;"><strong>4. Applying knowledge</strong> - activity 9 contains a short video and your students can use the information contained in the video to consider the impact of interest rate changes on the some relevant stakeholders. (10 minutes)</span></p><p><span style="color:#FF0000;"><strong>5. Applying knowledge</strong> - activity 10 contains a very short case study taken from the Guardian newspaper in June 2015, one year before the Brexit referendum. Have your classes read the short column and then either answer the questions individually or discuss as a class. This is an interesting discussion point, why when employment were at record high levels did the UK consumer appear reluctant to consume? (15 minutes)</span></p><p><span style="color:#FF0000;"><strong>6. Final reflection </strong>- complete this lesson by watching the short video, which focuses on AD in the UK economy. What were the driving forces behind the UK economy at the time of the news item? (10 minutes) </span></p></section></div><div class="greenBg"><h4><strong><img alt="" src="../../../ib/economics/images/macro-economics/short-run-macro-equilibrium.jpg" style="width: 320px; height: 320px; float: right;"></strong><em><strong>Key terms:</strong></em></h4><p><strong>Aggregate demand </strong>- the total spending in an economy consisting of consumption, investment, government expenditure and net exports. This is calculated by the formulae: <i>C+G+I+(X-M).</i></p><p><strong>Private consumption (C) </strong>- spending by households on domestic consumer goods and services over a period of time. </p><p><strong>Government spending (G)</strong> - public sector spending whether by national or local governments. This includes spending on public services such as health, education, public transport, defence and infrastructure projects. </p><p><strong>Investment (I)</strong> - expenditure by firms on capital equipment and is an injection into the economy.</p><p><strong>Net exports (X-M) </strong>-<strong> </strong>the value of exports (ie export revenues) - value of import (ie import expenditures).</p><p><strong>Budget deficit</strong> - when total government expenditure exceeds it's revenue.</p><p><strong>Budget surplus</strong> - when government revenue exceeds it's expenditure.</p></div><div class="blueBg"><h4><strong>Beginning activity</strong><strong>: A game to introduce the components of aggregate demand</strong></h4><p><em>To complete this game you will need to prepare the following: </em></p><p><img alt="" src="../../../ib/economics/images/macro-economics-2/download44.jpg" style="width: 250px; height: 375px; float: left;">On opposite sides of your classroom place the following posters: rise in AD and fall in AD. Then the two remaining walls place one poster which says 'increase' and on the last remaining wall place the word 'decrease'. </p><p>Present each player with a component of AD card - private consumption, investment, government spending, exports and imports. Each person starts the game in the middle of the room, which represents the economy in equilibrium.</p><p><strong>Steps of the game</strong></p><p>1. Explain the rules of the game and then provide each student with a AD component slip. </p><p>2. Read through potential changes to macroeconomic conditions, e.g. a rise in interest rates, fall in income tax e.t.c. After you read each instruction, each player will initially move towards the wall labelled increase or decrease, if appropriate. After which the players must decide whether the net result of their movements will lead to a rise in AD or a fall? </p><p><strong>Example 1</strong> - a rise in interest rates would mean that the students representing C and I would move to the wall labelled 'decrease' and the students holding the G cards would remain in the centre of the classroom. Those holding either X or M cards would have to decide the likely impact of the rate rise on their own actions.</p><p>The game can be contained for as long or as short a period as appropriate and can be extended to include the impact of the changing macroeconomic conditions to changes in production costs (AS) as well as the cost of each cost of action, e.g. the impact on the budget deficit, external balance e.t.c.</p></div><p>The activities on this page are available as a PDF file at: <a href="../../../media/ib/economics/files/macro-economics/components-of-ad.pdf.html" target="_blank" title="Student handouts"><img class="ico" src="../../../thinkib/icons/student-handout.png"> Components of AD</a> </p><div class="pinkBg"><h4><strong><img alt="" src="../../../ib/economics/images/macro-economics/sras-diagram.jpg" style="width: 320px; height: 320px; float: right;">Activity 1: Private consumption (C)</strong></h4><p>An economy experiences a rise in aggregate demand, as a result of a rise in private consumption (C) in the economy. </p><p>(a) Illustrate this on the diagram to the right.</p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/macro-economics/demand-pull-inflation.jpg" style="width: 320px; height: 320px;"></p></section><p>(b) Explain some of the factors that may have led to a rise in spending levels within the economy?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Private consumption can be influenced by a number of different factors, the most significant are changes to income levels, changes in interest rates, changes in wealth as well as a change in expectations / consumer confidence or a change in personal circumstances due to indebtedness.</span></p></section><p>(c) Indicate the change in both price level and real GDP, resulting from the rise in AD</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A rise in both variables.</span></p></section><p>(d) Explain the relationship between private consumption and the rate of interest in the economy?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"></span><img alt="" src="../../../ib/economics/images/macro-economics-2/download(3).jpg" style="width: 314px; height: 183px; float: left;" title="https://www.cbn.co.za"><span style="color:#FF0000;">Private consumption and the rate of interest are inversely related. Many purchases of durable goods are made with borrowed money or at least partly with borrowed money. Therefore, lower interest repayments make it more affordable for consumers to purchase more goods and services. </span></p><p><span style="color:#FF0000;">Lower interest rates also reduces the incentive for individuals to deposit their money in banks.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 2: Government spending (G)</strong></h4><p>Watch the following short videos and then answer the question 'What contribution do governments make towards running a successful economy?'</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/0Xg4Uq1W4L8" width="640"></iframe></p><p>And now for the opposing viewpoint, the video contains language that some may find offensive. </p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/Kll-yYQwmuM" width="640"></iframe></p></div><section class="tib-hiddenbox"><p><strong>Hint:</strong></p><p><span style="color:#FF0000;"></span></p><p><span style="color:#FF0000;">The response to this question depends on the respondents political leaning. Those on the Right of the political spectrum will generally reject government involvement in the economy, claiming that it is wasteful and inefficient - and there are plenty of examples of failed government projects to support this view.</span></p><p><span style="color:#FF0000;">On the other hand there are sectors of the economy which the private sector simply cannot accommodate effectively and the health, education and transport sectors are probably examples of this. Those sectors provide essential public services which help run the economy more effectively, but not everyone can afford to pay for them. Funding for these merit goods can only realistically come from government funding and so the most effective economies involve the public and private sectors working together.</span></p><p><span style="color:#FF0000;"></span></p></section><div class="pinkBg"><h4><strong>Activity 3: Budget surplus / budget deficits</strong></h4><p>Study the following table, which relate to 2022 and then answer the questions which follow:</p><table border="1" cellpadding="0" cellspacing="0" width="630"><tbody><tr><td style="width:66px;"><p align="center"><strong>Rank</strong></p></td><td style="width:94px;"><p align="center"><strong>Country</strong></p></td><td style="width:113px;"><p align="center"><strong>Revenues</strong><br><strong><strong>(million USD)</strong></strong></p></td><td style="width:113px;"><p align="center"><strong>Expenditures</strong><br><strong><strong>(million USD)</strong></strong></p></td><td style="width:115px;"><p align="center"><strong>Deficit/surplus</strong><br><strong><strong>(million USD)</strong></strong></p></td><td style="width:129px;"><p align="center"><strong>Deficit/surplus as a % of GDP</strong><br><strong><strong>(%)</strong></strong></p></td></tr><tr><td style="width:66px;"><p align="center">1</p></td><td style="width:94px;"><p align="center">USA</p></td><td style="width:113px;"><p align="center">5,923,829</p></td><td style="width:113px;"><p align="center">9,818,534</p></td><td style="width:115px;"><p align="center">(3,894,705)</p></td><td style="width:129px;"><p align="center">(18.73)</p></td></tr><tr><td style="width:66px;"><p align="center">2</p></td><td style="width:94px;"><p align="center">China</p></td><td style="width:113px;"><p align="center">3,622,313</p></td><td style="width:113px;"><p align="center">5,388,814</p></td><td style="width:115px;"><p align="center">(1,766,501)</p></td><td style="width:129px;"><p align="center">(11.88)</p></td></tr><tr><td style="width:66px;"><p align="center">3</p></td><td style="width:94px;"><p align="center">Germany</p></td><td style="width:113px;"><p align="center">1,729,224</p></td><td style="width:113px;"><p align="center">2,038,247</p></td><td style="width:115px;"><p align="center">(309,203)</p></td><td style="width:129px;"><p align="center">(8.18)</p></td></tr><tr><td style="width:66px;"><p align="center">4</p></td><td style="width:94px;"><p align="center">Japan</p></td><td style="width:113px;"><p align="center">1,666,454</p></td><td style="width:113px;"><p align="center">2,362,676</p></td><td style="width:115px;"><p align="center">(696,622)</p></td><td style="width:129px;"><p align="center">(14.15)</p></td></tr><tr><td style="width:66px;"><p align="center">5</p></td><td style="width:94px;"><p align="center">France</p></td><td style="width:113px;"><p align="center">1,334,944</p></td><td style="width:113px;"><p align="center">1,609,710</p></td><td style="width:115px;"><p align="center">(274,766)</p></td><td style="width:129px;"><p align="center">(10.77)</p></td></tr><tr><td style="width:66px;"><p align="center">6</p></td><td style="width:94px;"><p align="center">UK</p></td><td style="width:113px;"><p align="center">966,407</p></td><td style="width:113px;"><p align="center">1,400,776</p></td><td style="width:115px;"><p align="center">(434,369)</p></td><td style="width:129px;"><p align="center">(16.36)</p></td></tr><tr><td style="width:66px;"><p align="center">7</p></td><td style="width:94px;"><p align="center">Italy</p></td><td style="width:113px;"><p align="center">863,785</p></td><td style="width:113px;"><p align="center">1,103,721</p></td><td style="width:115px;"><p align="center">(239,936)</p></td><td style="width:129px;"><p align="center">(12.98)</p></td></tr></tbody></table></div><div class="pinkBg"><p><img alt="" src="../../../ib/economics/images/macro-economics-2/dsc01373.jpg" style="width: 320px; height: 213px; float: right;" title="image: pixels.com">1. Why might the leading countries be running budget deficits?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">The majority of the G7 nations have experienced relatively slow rates of economic growth in recent years. Therefore many will have seen a fall in tax revenues, while at the same time transfer payments in the form of welfare benefits will have risen as the level of unemployment rises.</span></p></section><p>2. What actions can a government take in order to correct their budget deficits?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">In the short term it is very difficult to correct a budget deficit. Many nations can only raise taxes, or reduce spending levels at the beginning of the financial year. In extreme cases a government may introduce an emergency budget but this is extremely unusual. This means that any deficit will have to be financed by additional borrowing, a measure that will further increase borrowing costs. In the long run governments will need to reduce spending levels and / or raise taxation levels. This is particularly difficult when economic growth is slow, as Greece and Italy are currently finding.</span></p></section></div><div class="pinkBg"><h4><img alt="" src="../../../ib/economics/images/macro-economics/investment.jpg" style="width: 300px; height: 300px; float: right;"><strong>Activity 4: Private investment (I)</strong></h4><p>The diagram to the right illustrates the relationship between the price of money (interest rate) and the level of investment in the economy. </p><p>(a) Explain why the relationship between the two variables is inverse?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Many businesses will need to borrow at least some of the money required to purchase the capital they require. Therefore, when interest rates rise the cost of capital investment also rises. </span></p><p><span style="color:#FF0000;">Secondly, for those businesses that do not need to borrow the funds to finance their investment, the rate of interest represents the opportunity cost of any investment. In other words, the capital required to make any investment purchase could instead earn interest in the bank. Therefore, the higher the rate of interest that a firm receives on their savings the higher the opportunity cost of any investment. </span></p><p><span style="color:#FF0000;"></span></p></section><p>(b) Suggest some other factors which might determine the level of investment in any economy.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Changes in national income, technological change, expectations / business confidence,</span> <span style="color:#FF0000;">corporation tax rates, the level of savings, availability of finance from banks and government policy - among others.</span></p><p><span style="color:#FF0000;"></span></p></section><p>(c) Which of the following is not a type of investment?</p><ul><li>an individual placing their savings in the bank to collect interest</li><li>an individual purchasing shares in a company in the hope of making a profit in the future</li><li>a business purchasing a piece of machinery which is used in the production process.</li></ul><section class="tib-hiddenbox"><p><span style="color:#FF0000;"></span><span style="color:#FF0000;">The answer is the first one - an individual placing their savings in the bank. This is not considered investment as there is no risk element to the transaction, instead it is just called saving. This is what makes the rate of interest an important determinate of investment because saving and investment are effectively substitutes for each other.</span></p><p><span style="color:#FF0000;"></span></p></section></div><div class="pinkBg"><h4><strong>Activity 5: The importance of investment</strong></h4><p>The following table which shows the level of investment as a % of gross domestic product and then answer the questions which follow:</p><table border="2" cellpadding="0" cellspacing="0"><tbody><tr><td style="text-align: center;"><strong>Country</strong></td><td style="text-align: center;"><strong>Investment as a % of GDP</strong></td><td style="text-align: center;"><strong>Average rate of economic growth 2005 - 2022 %</strong></td></tr><tr><td style="text-align: center;">Greece</td><td style="text-align: center;">12.7</td><td style="text-align: center;">(1.0)</td></tr><tr><td style="text-align: center;">USA</td><td style="text-align: center;">12.8</td><td style="text-align: center;">1.7</td></tr><tr><td style="text-align: center;">EU</td><td style="text-align: center;">17.8</td><td style="text-align: center;">1.0</td></tr><tr><td style="text-align: center;">Thailand</td><td style="text-align: center;">28.5</td><td style="text-align: center;">5.0</td></tr><tr><td style="text-align: center;">India</td><td style="text-align: center;">29.9</td><td style="text-align: center;">7.0</td></tr><tr><td style="text-align: center;">Qatar</td><td style="text-align: center;">30.6</td><td style="text-align: center;">13.0</td></tr><tr><td style="text-align: center;">Belarus</td><td style="text-align: center;">32.8</td><td style="text-align: center;">6.0</td></tr><tr><td style="text-align: center;">China</td><td style="text-align: center;">46.1</td><td style="text-align: center;">8.5</td></tr></tbody></table><p>1. Using a piece of paper and graph paper plot the above data to show the correlation between the level of investment in an economy and the level of economic growth.</p><p>2. Discuss the extent to which the two variables are correlated and outline potential reasons why?</p></div><section class="tib-hiddenbox"><p><span style="color:#FF0000;">There is a clear correlation between the two variables but perhaps not a perfect correlation, suggesting that there are other factors which determine a nation's ability to create additional income. These include the quality of a country's factors of production and the strength of its legal, political and financial institutions.</span></p></section><div class="pinkBg"><h4><strong>Activity 6: Net exports (X-M)</strong></h4><p>(a) Complete the following sentence by adding in the missing words:</p><p>____________ are goods and services produced in one country and purchased by residents living in a different nation. By contrast, ________ are products produced overseas and purchased by domestic residents. Net exports therefore is made up of ________ minus ________ and is the fourth determinant of ___________ ___________.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Exports, imports, exports, imports,aggregate demand.</span></p></section><p>(b) What factors influence a nation's net exports?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A nation's productivity, trade policy, exchange rates, resource endowment, technology, foreign currency reserves, inflation, and consumer preferences - both at home and abroad.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 7: Net trade</strong></h4><p>Study the following table and then answer the question which follows. All the information relates to 2022.</p><table border="1" cellpadding="0" cellspacing="0"><tbody><tr><td style="width:113px;"><p align="center"><strong>Nation</strong></p></td><td style="width:161px;"><p align="center"><strong>Exports M$</strong></p></td><td style="width:170px;"><p align="center"><strong>Imports M$</strong></p></td><td style="width:142px;"><p align="center"><strong>Net trade M$</strong></p></td></tr><tr><td style="width:113px;"><p align="center">China</p></td><td style="width:161px;"><p align="center">2,723,250</p></td><td style="width:170px;"><p align="center">2,055,590</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">667,660</p></section></td></tr><tr><td style="width:113px;"><p align="center">USA</p></td><td style="width:161px;"><p align="center">2,123,410</p></td><td style="width:170px;"><p style="text-align: center;">2,707,543</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">(584,133)</p></section></td></tr><tr><td style="width:113px;"><p align="center">Germany</p></td><td style="width:161px;"><p align="center">1,669,994</p></td><td style="width:170px;"><p align="center">1,131,857</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">538,137</p></section></td></tr><tr><td style="width:113px;"><p align="center">Japan</p></td><td style="width:161px;"><p align="center">785,366</p></td><td style="width:170px;"><p align="center">634,577</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">150,789</p></section></td></tr><tr><td style="width:113px;"><p align="center">UK</p></td><td style="width:161px;"><p align="center">770,479</p></td><td style="width:170px;"><p align="center">871,859</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">(101,380)</p></section></td></tr><tr><td style="width:113px;"><p align="center">France</p></td><td style="width:161px;"><p align="center"> 733,165</p></td><td style="width:170px;"><p align="center"> 769,225 </p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">(36,060)</p></section></td></tr><tr><td style="width:113px;"><p align="center">Netherlands</p></td><td style="width:161px;"><p align="center"> 711,505</p></td><td style="width:170px;"><p align="center"> 596,097</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">115,408</p></section></td></tr><tr><td style="width:113px;"><p align="center">India</p></td><td style="width:161px;"><p align="center"> 676,200</p></td><td style="width:170px;"><p align="center"> 710,200</p></td><td style="width:142px;"><section class="tib-hiddenbox"><p style="text-align: center;">(34,000)</p></section></td></tr></tbody></table><p>1. Calculate the trade net trade balance for each country.</p><p>2. Which of the above nations should be concerned about the size of their net trade balance?</p></div><section class="tib-hiddenbox"><p><img alt="" height="160" src="../../../ib/economics/images/macro-economics-2/international_trade_tablet_1920x960.jpg" style="float: right;" title="image: http://www.whitecase.com/" width="425"><span style="color:#FF0000;">China, Germany, Netherlands and South Korea on the above list have a significant current account surplus (exports > imports) while the USA and UK head the list of nations with significant deficits. None of the four nations with surpluses will be overly concerned about their net trade surplus. China particularly has made the achievement of a high net trade surplus a central plank of economic policy. </span></p><p><span style="color:#FF0000;">For the UK and USA particularly their trade deficits are much more worrying. A large net trade deficit will act as a significant drag on those economies. The deficits will have to be financed by purchases of foreign currency through either overseas borrowing or by the sale of assets, such as luxury housing and shares in domestic firms. </span></p></section><div class="pinkBg"><h4><img alt="" height="363" src="../../../ib/economics/images/macro-economics-2/download34.jpg" style="float: left;" title="image: httpshd.unsplash.com" width="199"><strong>Activity 8: Link to TOK</strong></h4><p>(a) Describe the difference between wealth and income? To what extent does a person's wealth or perception of wealth influence private consumption?</p><section class="tib-hiddenbox"><p><strong>Hint:</strong></p><p><span style="color:#FF0000;">Consumption decisions to a large extent are determined as much by a perception of wealth as they are actual disposable income. If a person feels wealthy and crucially feels confident about their future wealth prospects they are much more inclined to purchase high value luxury items such as a new car. This compounds the problems caused by recession or a slowdown in the economy. </span></p></section><p>(b) A family purchase a house in a fashionable area of their home city. They purchase it for $ 250,000 and three years later the houses in the area have risen by 30% to $ 325,000. Does this represent a rise in the households real wealth?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">In pure monetary terms the family have earned $ 75,000 in profit over three years. However, in real terms the profit may be minimal because in order to cash in their profit they would need to sell their home. In this situation they would have nowhere to live and to purchase another property would also cost them 30 % more than it did three years ago. </span></p></section></div><div class="pinkBg"><h4><strong>Activity 9: Applying knowledge</strong></h4><p>Watch the following short video and then describe the impact of a rise in interest rates on the following stakeholders:</p><ul><li>a young couple wishing to purchase their first home</li><li>firms which import a large proportion of the raw materials used in the production of their final product</li><li>a retired couple with significant savings in the bank</li><li>firms in the tourist industry.</li></ul><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/W7s-dxnCNk0" width="640"></iframe></p></div><section class="tib-hiddenbox"><p><span style="color:#FF0000;">As the video outlines the impact of a rise in interest rates on the housing market is significant and no more so than for young, first time buyers wishing to get on the property market. A rise in interest rates could reduce the ability of the couple to purchase a house as their income may no longer be sufficient to make the new (higher) mortgage payments.</span></p><p><span style="color:#FF0000;">On the other hand our retired couple, who probably own their home outright, rely on the interest they receive from their savings. They will welcome the higher return that they now enjoy on their savings.</span></p></section><div class="pinkBg"><h4><strong>Activity 10: Link to the assessment</strong></h4><p><strong>Part (a)</strong></p><p>Illustrate using an AD / AS diagram how a fall in interest rates can lead to a rise in national income in an economy. <em>[10 marks]</em></p><section class="tib-hiddenbox"><div><p><strong><span style="color:#FF0000;"><img alt="" src="../../../ib/economics/images/macro-economics/demand-pull-inflation.jpg" style="width: 300px; height: 300px; float: left;">Command term: Illustrate</span></strong></p><p><span style="color:#FF0000;"><em>Key terms to define: AD, AS, national income</em></span></p><p><span style="color:#FF0000;">Aggregate demand is derived from the sum of private consumption, government spending, investment and net exports. A rise in any of these components will increase aggregate demand. When a nation reduces the rate of interest in an economy both consumption and investment levels are likely to rise. This is because lower interest rate will discourage saving and makes consumers likely to spend more of their disposable income. Disposable income levels may also rise as households see a fall in their mortgage and other debt repayments. In terms of businesses, a fall in interest rates should also boost spending on new machinery as the price of capital falls and the return on placing their surplus capital in banks falls, encouraging businesses to invest. </span></p><p><span style="color:#FF0000;">As consumption and investment are two of the components of AD a nation would expect to see a rise in economic activity, all other things being equal. This is represented on the diagram by a rise from Y1 to Y2.</span></p></div></section><p><strong>Part (b)</strong></p><p>Using a real world example, evaluate the view that increased investment is the key to maintaining long term economic growth. <em>[15 marks]</em></p><section class="tib-hiddenbox"><div><p><strong><span style="color:#FF0000;"></span><span style="color:#FF0000;"><img alt="" src="../../../ib/economics/images/macro-economics/rise-in-investment-on-ad-and-as.jpg" style="width: 300px; height: 300px; float: right;"></span><span style="color:#FF0000;"></span></strong></p><p><span style="color:#FF0000;"><strong>Command term: Evaluate</strong></span></p><p><span style="color:#FF0000;"><em>Key terms to explain: investment, economic growth</em></span></p><p><span style="color:#FF0000;">With the command term evaluate, responses must consider the extent to which this statement is true or not?</span></p><p>Real world examples might include nations such as S.Korea, China or Qatar that have seen high rates of investment resulted in high rates of economic growth.</p><p><span style="color:#FF0000;"></span><span style="color:#FF0000;"></span></p><p><span style="color:#FF0000;">Given the command term in this example the response needs to evaluate the role of investment in maintaining long term growth, i.e. how important to long term growth is sustained high investment levels. </span></p><p><span style="color:#FF0000;">As one of the components of aggregate demand, a rise in investment levels will increase AD levels, all other things being equal. This is illustrated on the diagram by a rise from AD1 to AD2.</span></p><p><span style="color:#FF0000;">At the same time greater levels of investment would also increase the productive capacity of the nation through a rise in the quantity and or quality of the factors of production, illustrated on the graph by the rise from LRAS1 to LRAS2. Investments</span> <span style="color:#FF0000;">in physical and human capital have a track record of successfully maintaining high rates of economic growth in a nation, <span style="color:#FF0000;">represented on the diagram by a rise in national income from Y1 to Y2.</span></span></p><p><span style="color:#FF0000;">A good example of this being China that has consistently maintained a very high level of investment relative to GDP and witnessed spectacular growth rates as a result. Other nations that have diverted significant resources towards investment e.g. South Korea and Japan have also enjoyed significant high rates of economic growth.</span></p><p><span style="color:#FF0000;">Responses also need to recognise that while investment is important in determining growth other factors are also significant and that high level of investment are insufficient on their own. Other factors would need to be considered such as the strength of a nation's institutions and access to natural resources. Responses should also recognise that the type of</span><span style="color:#FF0000;"> investment is also important with investments in human research being perhaps the most effective.</span></p><p><span style="color:#FF0000;">Responses could end with a consideration of which comes first growth or investment - do high levels of<br>investment cause economic growth, or does high levels of growth stimulate higher levels of investment.</span></p></div></section></div><script>document.querySelectorAll('.tib-teacher-only').forEach(e => e.remove());</script>
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