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6. International economic issues

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  1. 6.1 The reasons for international trade

    1. • Distinction between absolute and comparative advantage

    2. • Benefits of specialisation and free trade (trade liberalisation), including the trading possibility curve

    3. • Exports, imports and the terms of trade: - measurement of the terms of trade - causes of changes in the terms of trade - impact of changes in the terms of trade

    4. • Limitations of the theories of absolute and comparative advantage

  2. 6.2 Protectionism

    1. • Meaning of protectionism in the context of international trade

    2. • Different tools of protection and their impact: - tariffs - import quotas - subsidies - embargoes - excessive administrative burdens ('red tape')

    3. • Arguments for and against protectionism

  3. 6.3 Current account of the balance of payments

    1. • Components of the current account of the balance of payments: - current account: trade in goods, trade in services, primary income and secondary income - definition of balance and imbalances (deficit and surplus) in the current account of the balance of payments

    2. • Calculation of: - balance of trade in goods - balance of trade in services - balance of trade in goods and services - current account balance (CAB)

    3. • Causes of imbalances in the current account of the balance of payments

    4. • Consequences of imbalances in the current account of the balance of payments for the domestic and external economy

  4. 6.4 Exchange rates

    1. 6.4.1Exchange rate

      • Definition of exchange rate

    2. 6.4.2Floating exchange rate

      • Determination of a floating exchange rate

    3. 6.4.3Depreciation vs appreciation

      • Distinction between depreciation and appreciation of a floating exchange rate

    4. 6.4.4Exchange rate changes

      • Causes of changes in a floating exchange rate: demand and supply of the currency

    5. 6.4.5Exchange rates in AD/AS

      • AD/AS analysis of the impact of exchange rate changes on the domestic economy's equilibrium national income and the level of real output, the price level and employment

  5. 6.5 Policies to correct imbalances in the current account of the balance of payments

    1. • Government policy objective of stability of the current account

    2. • Effect of fiscal, monetary, supply-side and protectionist policies on the current account