QuestionQuestionConceptConceptDocumentDocument

Unit 4 The global economy

Start with Concept to understand a topic, then use Question Bank to check what you know.

10 topics · 51 learning objectives

Your progress

Sign in to see your mastery and mistakes.

  1. 4.1 Benefits of international trade

    1. 4.1.1Benefits of international trade

      • Trade can increase competition, lower prices, expand choice, and provide access to resources • Trade can raise foreign exchange earnings, access larger markets, generate economies of scale, and improve resource allocation and production efficiency • Diagram: free trade illustrating exports when world price is above domestic price • Diagram: free trade illustrating imports when world price is below domestic price

    2. 4.1.2(HL)—Absolute and comparative advantage

      • Comparative advantage is based on lower opportunity cost • Specialization and trade can create gains from trade • Sources of comparative advantage explain why countries trade • Diagram [HL]: linear PPCs showing different opportunity costs and gains from specialization and trade • Calculation [HL]: opportunity costs from data to identify comparative advantage

    3. 4.1.3(HL)—Limits of comparative advantage

      • Comparative advantage theory has limitations in real-world trade analysis • Evaluation should consider assumptions, distributional effects, and practical constraints

    4. 4.1.4(HL)—Trade quantity and value calculations

      • Calculate quantity of exports and quantity of imports from a diagram • Calculate import expenditure and export revenue from a diagram

  2. 4.2 Types of trade protection

    1. 4.2.1Tariffs

      • Tariffs affect markets and stakeholders through price, production, consumption, expenditure, revenue, and welfare effects • Diagram: tariff effects on price, production, consumption, expenditure, revenue, and welfare

    2. 4.2.2Quotas

      • Quotas restrict import quantity and affect price, production, consumption, expenditure, revenue, and welfare • Diagram: quota effects on price, production, consumption, expenditure, revenue, and welfare

    3. 4.2.3Subsidies and export subsidies

      • Subsidies affect domestic producers, consumers, governments, foreign producers, and welfare • Diagram: subsidy effects on price, production, consumption, expenditure, revenue, and welfare

    4. 4.2.4Administrative barriers

      • Administrative barriers include standards and regulations • They can restrict trade without using tariffs or quotas directly

    5. 4.2.5(HL)—Trade protection calculations

      • Calculate stakeholder effects of tariffs from a diagram • Calculate stakeholder effects of quotas from a diagram • Calculate stakeholder effects of subsidies from a diagram

  3. 4.3 Arguments for and against trade control/protection

    1. 4.3.1Arguments for trade protection

      • Arguments include infant industries, national security, health and safety, environmental standards, anti-dumping, and unfair competition • Further arguments include balance of payments correction, government revenue, job protection, and ELDC diversification

    2. 4.3.2Arguments against trade protection

      • Arguments include misallocation of resources, retaliation, increased costs, higher prices, and less choice • Trade protection can reduce efficiency incentives and export competitiveness

    3. 4.3.3Free trade versus protection

      • Free trade and protection should be evaluated using efficiency, equity, stakeholders, and long-run effects • Policy judgments depend on context and objectives

  4. 4.4 Economic integration

    1. 4.4.1Preferential trade agreements

      • Preferential trade agreements can be bilateral, regional, or multilateral • The World Trade Organization is the key multilateral trade institution

    2. 4.4.2Trading blocs

      • Trading blocs include free trade areas, customs unions, and common markets • They increase integration between member economies

    3. 4.4.3Advantages of trading blocs

      • Advantages include wider market access, economies of scale, labour mobility, stronger bargaining power, political stability, and cooperation

    4. 4.4.4Disadvantages of trading blocs

      • Disadvantages include loss of sovereignty and challenges to multilateral trade negotiations

    5. 4.4.5Monetary union

      • Monetary union is a deeper form of economic integration

    6. 4.4.6World Trade Organization

      • The WTO has objectives and functions linked to trade rules and negotiations • WTO influence is affected by difficulty reaching agreement on services and primary products • Unequal bargaining power between members affects WTO influence

    7. 4.4.7(HL)—Trade creation

      • Trade creation is an advantage of trading blocs • Trade creation can improve resource allocation within a bloc

    8. 4.4.8(HL)—Trade diversion

      • Trade diversion is a disadvantage of trading blocs • Trade diversion can shift purchases away from more efficient non-member producers

    9. 4.4.9(HL)—Monetary union evaluation

      • Evaluate advantages and disadvantages of monetary union

  5. 4.5 Exchange rates

    1. 4.5.1Floating exchange rates

      • Floating exchange rates are determined by demand and supply for a currency • Currency depreciation and appreciation describe decreases and increases in currency value • Diagram: exchange rate determination and changes in equilibrium in a floating exchange rate system • Calculation: using exchange rates to find the price of a good in different currencies

    2. 4.5.2Demand and supply for currencies

      • Currency demand and supply change with exports, imports, FDI, portfolio investment, remittances, speculation, inflation rates, interest rates, growth rates, and central bank intervention • Calculation: changes in currency value from data

    3. 4.5.3Consequences of exchange rate changes

      • Exchange rate changes affect inflation, growth, unemployment, current account balance, and living standards • Diagram: AD/AS showing possible macroeconomic consequences of exchange rate changes

    4. 4.5.4Fixed exchange rates

      • Fixed exchange rates can involve devaluation and revaluation • Governments and central banks maintain fixed rates through intervention • Diagram: how a fixed exchange rate is maintained

    5. 4.5.5Managed exchange rates

      • Managed exchange rates can become overvalued or undervalued • Diagram: exchange rate determination and changes in equilibrium in a managed exchange rate system

    6. 4.5.6(HL)—Fixed versus floating exchange rate systems

      • HL evaluation compares advantages and disadvantages of fixed and floating exchange rate systems • Evaluation considers stability, flexibility, policy independence, and external balance

  6. 4.6 Balance of payments

    1. 4.6.1Balance of payments

      • Balance of payments records credit and debit items • Accounts can show surpluses or deficits • Calculation: elements of the balance of payments from data

    2. 4.6.2Components of the balance of payments

      • Current account includes trade in goods, trade in services, income, and current transfers • Capital account includes capital transfers and transactions in non-produced non-financial assets • Financial account includes FDI, portfolio investment, reserve assets, and official borrowing

    3. 4.6.3Interdependence between accounts

      • The balance of payments has an overall zero balance • Credits are matched by debits • Deficits are matched by surpluses

    4. 4.6.4(HL)—Current account and exchange rate

      • The current account balance relates to currency demand, supply, and exchange rate movements • Diagram [HL]: exchange rate showing relationship between current account balance and exchange rate

    5. 4.6.5(HL)—Financial account and exchange rate

      • Financial account flows affect demand and supply for a currency • Capital and financial flows can influence exchange rates

    6. 4.6.6(HL)—Persistent current account deficit

      • Deficits have implications for exchange rates, interest rates, foreign ownership of domestic assets, debt, credit ratings, demand management, and growth • Correction methods include expenditure switching, expenditure reducing, and supply-side policies • Evaluation considers effectiveness of measures to correct persistent deficits

    7. 4.6.7(HL)—Marshall-Lerner condition and J-curve

      • Marshall-Lerner condition explains when depreciation improves the current account • J-curve effect shows the possible short-run worsening before improvement • Diagram [HL]: J-curve with reference to the Marshall-Lerner condition

    8. 4.6.8(HL)—Persistent current account surplus

      • Surpluses have implications for domestic consumption and investment, exchange rates, inflation, employment, and export competitiveness • Evaluation considers domestic and international consequences

  7. 4.7 Sustainable development

    1. 4.7.1Sustainable development

      • Sustainable development links economic progress with environmental and social sustainability • Sustainable Development Goals provide a framework for development priorities

    2. 4.7.2(HL)—Sustainability and poverty

      • Sustainability and poverty are connected because poverty can constrain sustainable choices • Sustainable development strategies must consider poverty reduction and resource limits together

  8. 4.8 Measuring development

    1. 4.8.1Multidimensional development

      • Economic development is multidimensional and cannot be captured by income alone • Development includes living standards, health, education, inequality, energy use, and environmental outcomes

    2. 4.8.2Single development indicators

      • Single indicators include GDP or GNI per capita at PPP • Other indicators include health, education, inequality, energy, and environmental indicators

    3. 4.8.3Composite development indicators

      • Composite indicators include Human Development Index (HDI), Gender Inequality Index (GII), Inequality adjusted Human Development Index (IHDI), and Happy Planet Index • Composite measures combine multiple dimensions of development

    4. 4.8.4Evaluating development measures

      • Measurement approaches have strengths and limitations • Economic growth and economic development may be related but are not identical

  9. 4.9 Barriers to economic growth and/or economic development

    1. 4.9.1Poverty traps and poverty cycles

      • Poverty traps are self-reinforcing conditions that keep people or economies poor • Diagram: poverty cycle showing linked factors perpetuating poverty

    2. 4.9.2Economic barriers to growth and development

      • Barriers include rising inequality, weak infrastructure, inappropriate technology, low human capital, and dependence on primary production • Other barriers include lack of market access, informal economy, capital flight, indebtedness, landlocked geography, tropical climates, and endemic diseases

    3. 4.9.3Political and social barriers

      • Weak institutions include legal system weaknesses, ineffective taxation, weak banking systems, and insecure property rights • Other barriers include gender inequality, corruption, lack of good governance, and unequal political power and status

    4. 4.9.4Significance of barriers

      • Different barriers have different importance depending on country context • Evaluation should consider how barriers interact and reinforce one another

  10. 4.10 Economic growth and/or economic development strategies

    1. 4.10.1Trade and diversification strategies

      • Trade strategies include import substitution, export promotion, and economic integration • Diversification reduces dependence on narrow sectors or products • Social enterprise can support growth and development goals • Diagrams: draw from relevant diagrams used in other sections

    2. 4.10.2Market-based strategies

      • Market-based policies include trade liberalization, privatization, and deregulation • These strategies aim to improve efficiency, incentives, and market access

    3. 4.10.3Interventionist and merit good strategies

      • Interventionist policies include redistribution through tax policies, transfer payments, and minimum wages • Merit good provision includes education, health, infrastructure, energy, transport, telecommunications, clean water, and sanitation

    4. 4.10.4Investment, aid, and development assistance

      • Inward FDI can support growth and development • Foreign aid includes humanitarian aid, development aid, debt relief, ODA, and NGO support • Multilateral development assistance includes the World Bank and International Monetary Fund

    5. 4.10.5Institutional change

      • Institutional change includes improved access to banking, microfinance, and mobile banking • Institutional strategies include women's empowerment, reducing corruption, property rights, and land rights

    6. 4.10.6Evaluating growth and development strategies

      • Strategies should be evaluated for strengths and limitations in promoting growth and development • Government intervention and market-oriented approaches should be compared in context • Progress toward selected Sustainable Development Goals should be assessed in two or more countries