IB Economics Syllabus + Topics

2.12 The market's ability to achieve equity (HL only)

• Workings of free market economy may result in an unequal distribution of income and wealth

Unit 3: Macroeconomics

3.1 Measuring economic activity and illustrating its variations

• National income accounting as a measure of economic activity
• Equivalence of the income, output and expenditure approaches to national income accounting, with reference to the circular flow model
• Gross domestic product (GDP) as a measure of national output
• Gross national income (GNI) as a measure of national output
• Real GDP and real GNI
• Real GDP/GNI per person (per capita) Real GDP/GNI per person (per capita) at purchasing power parity (PPP)
• Business cycle: short-term fluctuations and long-term growth trend (potential output) 
• Appropriateness of using GDP or GNI statistics to measure economic well-being—use of national income statistics for making:
  • comparisons over time
  • comparisons between countries
• Alternative measures of well-being
  • OECD Better Life Index
  • Happiness Index
  • Happy Planet Index

3.2 Variations in economic activity—aggregate demand and aggregate supply

• Aggregate demand (AD)
  • Aggregate demand curve
• Components of AD: consumption (C) + investment (I) + government spending (G) + net exports (total exports [X] - total imports [M])
• Determinants of AD components
  • C: consumer confidence, interest rates, wealth, income taxes, level of household indebtedness, expectations of future price level
  • I: interest rates, business confidence, technology, business taxes, level of corporate indebtedness
  • G: political and economic priorities
  • X - M: income of trading partners, exchange rates, trade policies
• Shifts of the AD curve caused by changes in determinants
• Short-run aggregate supply (SRAS) curve and determinants of the SRAS curve
• Shifts of the SRAS curve
• Alternative views of aggregate supply (AS)
  • Monetarist/new classical view of the long-run aggregate supply (LRAS) curve
  • Keynesian view of the AS curve 
  • Inflationary and deflationary/recessionary gaps
• Shifts of the AS curve over the long-run (monetarist/new classical LRAS) or over the long term (Keynesian AS)
  • Changes in the quantity and/or quality of factors of production 
  • Improvements in technology
  • Increases in efficiency
  • Changes in institutions
  • Macroeconomic equilibrium
  • Short-run equilibrium
  • Equilibrium in the monetarist/new classical model 
• Assumptions and implications of the monetarist/new classical and Keynesian models 

3.3 Macroeconomic objectives

• Economic growth 
  • Short-term growth 
  • Long-term growth 
  • Measurement of economic growth 
  • Consequences of economic growth 
• Low unemployment
  • Measurement of unemployment and the unemployment rate
  • Difficulties of measuring unemployment
  • Causes of unemployment—cyclical (demand deficient), structural, seasonal, frictional
  • Natural rate of unemployment—sum of the structural, seasonal, frictional unemployment
  • Costs of unemployment—personal costs, social costs, economic costs
• Low and stable rate of inflation
  • Measuring the inflation rate, using consumer price index (CPI) data
  • The limitations of the CPI in measuring inflation
  • Causes of inflation—demand-pull and cost-push
  • Costs of a high inflation rate—uncertainty, redistributive effects, effects on saving, damage to export competitiveness, impact on economic growth, inefficient resource allocation
  • Causes of deflation—changes in AD or SRAS
  • Disinflation and deflation
  • Costs of deflation—uncertainty, redistributive effects, deferred consumption, association with high levels of cyclical unemployment and bankruptcies, increase in the real value of debt, inefficient resource allocation, policy ineffectiveness
• Relative costs of unemployment versus inflation 
• Sustainable level of government (national) debt (HL only)
  • Measurement of government (national) debt as a percentage of GDP
  • Relationship between a budget deficit and government (national) debt
  • Costs of a high government (national) debt—debt servicing costs, credit ratings, impacts on future taxation and government spending
• Potential conflict between macroeconomic objectives 
  • Low unemployment and low inflation 
  • Trade-off between unemployment and inflation (HL only)
  • Phillips curve (HL only)
• High economic growth and low inflation
• High economic growth and environmental sustainability
• High economic growth and equity in income distribution

3.4 Economics of inequality and poverty

• Relationships between equality and equity
• The meaning of economic inequality 
  • Unequal distribution of income 
  • Unequal distribution of wealth
• Measuring economic inequality
  • Lorenz curve and Gini coefficient (index)
• Meaning of poverty
  • Difference between absolute and relative poverty
• Measuring poverty
  • Single indicators 
  • Composite indicators 
• Difficulties in measuring poverty 
• Causes of economic inequality and poverty
• The impact of income and wealth inequality on:
  • economic growth
  • standards of living
  • social stability
• The role of taxation in reducing poverty, income and wealth inequalities
  • Progressive, regressive and proportional taxes
  • Direct taxes
  • Indirect taxes
• Further policies to reduce poverty, income and wealth inequality

3.5 Demand management (demand-side policies): monetary policy

• Monetary policy
  • Control of money supply and interest rates by the central bank
• Goals of monetary policy
  • Low and stable rate of inflation
  • Low unemployment
  • Reduce business cycle fluctuations
  • Promote a stable economic environment for long-term growth
  • External balance
• The process of money creation by commercial banks (HL only)
• Tools of monetary policy (HL only)
• Demand and supply of money: determination of equilibrium interest rates (HL only)
• Real versus nominal interest rates
• Expansionary and contractionary monetary policies to close deflationary/recessionary and inflationary gaps

• Effectiveness of monetary policy 

  
   

3.6 Demand management: fiscal policy

• Fiscal policy
  • Sources of revenue: direct and indirect taxation, sale of goods and services from state-owned enterprises, sale of government assets
  • Expenditures: current expenditures, capital expenditures, transfer payments
• Goals of fiscal policy
• Expansionary and contractionary fiscal policies in order to close deflationary/recessionary and inflationary gaps 
• Keynesian multiplies (HL only)
• Effectiveness of fiscal policy
• Goals of supply-side policies
  • Long-term growth by increasing the economy’s productive capacity
  • Improving competition and efficiency
  • Reducing labour costs and unemployment through labour market flexibility
  • Reducing inflation to improve international competitiveness
  • Increasing firms’ incentives to invest in innovation by reducing costs
• Markt-based policies including:
  • Policies to encourage competition 
  • Labour market policies 
  • Incentive-related policies
• Interventionist policies 
• Demand-side effects of supply-side policies
• Supply-side effects of fiscal policies
• Effectiveness of supply-side policies

Unit 4: The Global Economy 

4.1 Benefits of international trade

• Benefits of international trade
• Absolute and comparative advantage (HL only) 
  • Gains from trade
  • Sources of comparative advantage
  • Opportunity costs
• Limitations of the theory of comparative advantage (HL only)

4.2 Types of trade protection

•  Tariffs, quotas, and subsidies 
  • Effects on markets and stakeholders
• Administrative barriers

4.3 Arguments for and against trade control/ protection

• Arguments for trade protection/advantages of trade protection, including:
  • protection of infant (sunrise) industries
  • national security
  • health and safety
  • environmental standards
  • anti-dumping
  • unfair competition
  • balance of payments correction
  • government revenue
  • protection of jobs
  • Economically least developed country (ELDC) diversification
• Arguments against trade protection/disadvantages of trade protection, including:
  • misallocation of resources
  • retaliation
  • increased costs
  • higher prices
  • less choice
  • domestic firms lack incentive to become more efficient
  • reduced export competitiveness
• Free trade versus trade protection 

4.4 Economic integration 

• Preferential trade agreements
  • Bilateral
  • Regional
  • Multilateral (the World Trade Organization)
• Trading blocs
  • Free trade areas/agreements
  • Customs unions
  • Common markets
• Advantages and disadvantages of trading blocs 
• Advantages, including:
  • trade creation (HL only)
  • greater access to markets offer potential for economies of scale
  • with freedom of labour, there are greater employment opportunities
  • membership in a trading bloc may allow for stronger bargaining power in multilateral negotiations
  • greater political stability and cooperation 
• Disadvantages, including:
  • trade diversion (HL only)
  • loss of sovereignty
  • challenge to multilateral trading negotiations
• Monetary union 
• Advantages and disadvantages of monetary union (HL only)
• The WTO

4.5 Exchange rates

• Floating exchange rates
• Changes in demand and supply for a currency
• Consequences of changes in the exchange rate on economic indicators
• Fixed exchange rate
• Managed exchange rates

4.6 Balance of payments

• Balance of payments
  • Credit and debit items
  • Surplus or deficit on an account
• Components of the balance of payments 
• Interdependence between the accounts
  • Zero balance in the balance of payments
  • Credits matched by debits
  • Deficits matched by surpluses
• Relationship between the current account and the exchange rate (HL only) 
• Relationship between the financial account and the exchange rate (HL only)
• Implications of a persistent current account deficit in terms of: (HL only)
  • exchange rates
  • interest rates
  • foreign ownership of domestic assets
  • debt
  • credit ratings
  • demand management
  • economic growth
• Methods to correct a persistent current account deficit (HL only)
  • Expenditure switching
  • Expenditure reducing
  • Supply-side policies
• Effectiveness of measures to correct a persistent current account deficit (HL only)
• The Marshall-Lerner condition and the J-curve effect (HL only) 
• Implications of a persistent current account surplus in terms of (HL only):
  • domestic consumption and investment
  • exchange rates
  • inflation
  • employment 
  • export competitiveness

4.7 Sustainable development

• The meaning of sustainable development 
• SDGs
• Relationship between sustainability and poverty (HL only)

4.8 Measuring development 

• The multidimensional nature of economic development
• Single indicators 
  • GDP/GNI per person (per capita) at PPP 
  • Health and education indicators 
  • Economic/social inequality indicators 
  • Energy indicators 
  • Environmental indicators
• Composite indicators
  • Human Development Index (HDI)
  • Gender Inequality Index (GII)
  • Inequality adjusted Human Development Index (IHDI)
  • Happy Planet Index 
• Strengths and limitations of approaches to measuring economic development
• Possible relationship between economic growth and economic development

4.9 Barriers to economic growth and/or economic development

• Poverty traps/poverty cycles
• Economic barriers
• Political and social barriers
• Significance of different barriers to economic growth and/or economic development

4.10  Economic growth and/or economic development strategies

• Strategies to promote economic growth and/or economic development
  • Trade strategies 
  • Diversification
  • Social enterprise
  • Market-based policies
  • Interventionist policies
  • Provision of merit goods 
  • Inward foreign direct investment
  • Foreign aid
  • Multilateral development assistance
  • Institutional change
• Strengths and limitations of strategies for promoting economic growth and economic development
• Strengths and limitations of government intervention versus market-oriented approaches to achieving economic growth and economic development
• Progress toward meeting selected Sustainable Development Goals in the context of two or more countries

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