Comprehensive IGCSE Economics Syllabus

Table of Contents

1 IGCSE Economics Paper pattern
2 Unit 1: The Basic Economic Problem
3 Unit 2: The Allocation of Resources
4 Unit 3: Microeconomic Decision Makers
5 Unit 4: Government and the Macroeconomy
6 Unit 5: Economic Development
7 Unit 6: International Trade and Globalization

IGCSE Economics is a subject that explores how societies allocate resources to meet the needs and wants of individuals and groups. It examines the behavior of consumers, businesses, and governments, and how they interact in different economic systems. This subject helps students develop a critical understanding of economic theories, concepts, and issues that affect our daily lives. Students will learn about the production, distribution, and consumption of goods and services, as well as the role of markets, prices, and incentives in shaping economic behavior. IGCSE Economics provides students with a foundation for further study in economics and related fields, and equips them with the skills to make informed decisions as consumers and citizens in a global economy.

IGCSE Economics Paper pattern

This section outlines the IGCSE Economics paper pattern, including the structure of the examination and the types of questions students can expect.

Paper 1 – Multiple Choice

Multiple-choice paper, 45 minutes, 30 marks
Calculators may be used in the examination.
The paper assesses the following assessment objectives:
1. AO1: Knowledge and understanding
2. AO2: Analysis

Paper 2 – Structured Questions

Written paper, 2 hours 15 minutes, 90 marks
Candidates answer one compulsory question in Section A and three questions from a choice of four in Section B. Candidates write their answers in the answer booklet provided.

Calculators may be used in both sections of the examination.

Unit 1: The Basic Economic Problem

In this unit, students delve into the fundamental concept of scarcity and resource allocation effectively.

Subtopic	Subtopic Number	Key points
The nature of the economic problem	1.1	Scarcity: Resources are limited and cannot satisfy all the needs and wants of individuals and societies. This means that choices have to be made, as not all wants can be fulfilled with the limited resources available. Choice: Individuals, businesses, and governments must make choices about what to produce, how to produce, and for whom to produce. These decisions involve trade-offs, as producing more of one good or service often means producing less of another. Opportunity cost: Whenever a choice is made, there is an opportunity cost, which is the cost of the next best alternative forgone. For example, if a business decides to invest in new machinery, the opportunity cost may be the foregone opportunity to invest in new staff or marketing. The role of incentives: People respond to incentives, which can either be positive (rewarding) or negative (punishing). Understanding the incentives that drive people’s behavior is crucial for understanding how markets work and how economic decisions are made.
The factors of production	1,2	Land: This refers to all the natural resources used in production, such as forests, minerals, water, and fertile land. Land is a passive factor of production, meaning that it cannot be created or improved by human effort. Labour: This refers to the human effort used in production, including physical and mental work. This factor includes both skilled and unskilled workers. Capital: This refers to the man-made resources used in production, such as machinery, tools, buildings, and technology. Capital can be both physical and human (e.g. training or education). Entrepreneurship: This refers to the ability to combine the other factors of production to create new products, services, or ways of organizing production. Entrepreneurs take risks and innovate in order to create value and earn profits.
Opportunity cost	1.3	Trade-offs: Whenever a choice is made, there is a trade-off involved, as choosing one option often means giving up the opportunity to choose another. Opportunity cost helps individuals, businesses, and governments to make better decisions by considering the benefits and costs of each option. Marginal cost: Opportunity cost is related to marginal cost, which is the cost of producing one additional unit of a good or service. To produce more of one good or service, resources must be shifted away from the production of another good or service, and this involves an opportunity cost. Time: Opportunity cost can also be related to time, as the time spent on one activity cannot be spent on another. For example, if a student spends time studying for an exam, the opportunity cost may be the time spent on leisure activities or part-time work. Comparative advantage: Opportunity cost is also related to comparative advantage, which is the ability of a country, individual, or business to produce a good or service at a lower opportunity cost than others. By specializing in the production of goods or services in which they have a comparative advantage, individuals and countries can benefit from trade and increase overall welfare.
Production Possibility curve	1.4	Opportunity cost: The PPC illustrates the concept of opportunity cost. In order to produce more of one good or service, an economy must give up some of the production of another good or service. The slope of the PPC shows the opportunity cost of producing one good in terms of the other. Efficiency: The PPC also shows the concept of efficiency. Any point on the PPC represents the maximum possible output of two goods given the available resources and technology. Points inside the PPC represent inefficiency, while points outside the PPC are currently unattainable with the current resources and technology. Scarcity: The PPC is also related to the concept of scarcity. The PPC assumes that resources are limited, so an economy must choose how to allocate its resources in the most efficient way possible. Economic growth: Changes in resources or technology can shift the PPC outward, indicating an increase in the economy’s potential output. This can be due to increased productivity, increased resources, or technological advancement.

Unit 2: The Allocation of Resources

This unit explores resource allocation mechanisms and the factors influencing it, providing valuable insights for students seeking guidance on how to study for Economics IGCSE.

Subtopic	Subtopic Number	Key points
Microeconomics and macroeconomics	2.1	Economics is the study of how individuals and societies allocate scarce resources to satisfy unlimited wants and needs. Microeconomics focuses on the behavior of individual consumers, firms, and industries, while macroeconomics examines the performance of the economy as a whole. Both microeconomics and macroeconomics use models and theories to analyze economic issues and make predictions about future trends. Economics is a social science that is influenced by political, social, and cultural factors, and its findings can be used to inform public policy and decision-making.
The role of markets in allocating resources	2.2	Markets provide a mechanism for buyers and sellers to exchange goods and services, and the price of these goods and services is determined by the forces of supply and demand. In a market economy, resources are allocated through the price mechanism, where prices serve as signals for producers and consumers to make decisions about what to produce and consume. The market system rewards those who produce goods and services that are in high demand and are able to do so at a low cost. This provides an incentive for producers to innovate and improve their production methods. The market system is characterized by competition, which encourages firms to produce goods and services at the lowest cost possible in order to stay competitive. This helps to ensure that resources are used efficiently, as firms are incentivized to minimize waste and maximize profits.
Demand	2.3	Demand refers to the willingness and ability of consumers to purchase a specific quantity of a good or service at a given price, over a certain period of time. The law of demand states that, all other things being equal, as the price of a good or service increases, the quantity demanded of that good or service will decrease, and vice versa. The factors that can influence demand include the price of the good or service, consumer income, the prices of substitute and complementary goods, consumer tastes and preferences, and changes in the size of the population.
Supply	2.4	Supply refers to the willingness and ability of producers to offer a specific quantity of a good or service for sale at a given price, over a certain period of time. The law of supply states that, all other things being equal, as the price of a good or service increases, the quantity supplied of that good or service will increase, and vice versa. The factors that can influence supply include the cost of production, the prices of related goods or services, technological changes, natural disasters, and government policies and regulations.
Price Determination	2.5	Price determination is the process by which the price of a good or service is established in a market economy through the interaction of supply and demand. In a competitive market, the price of a good or service is determined by the point at which the quantity supplied equals the quantity demanded, which is referred to as the equilibrium price. If the quantity demanded of a good or service is greater than the quantity supplied, this creates a shortage and prices will tend to rise until equilibrium is restored. Conversely, if the quantity supplied is greater than the quantity demanded, this creates a surplus and prices will tend to fall until equilibrium is restored. Changes in either supply or demand can cause the equilibrium price to shift. For example, if demand increases while supply remains constant, the equilibrium price will increase, and if supply increases while demand remains constant, the equilibrium price will decrease.
Price changes	2.6	Price changes occur when there is a shift in the supply or demand curve for a good or service, causing the equilibrium price to rise or fall. An increase in demand will lead to an increase in both the equilibrium price and quantity sold, while a decrease in demand will lead to a decrease in both the equilibrium price and quantity sold. An increase in supply will lead to a decrease in the equilibrium price and an increase in the quantity sold, while a decrease in supply will lead to an increase in the equilibrium price and a decrease in the quantity sold. Price changes can have various effects on different stakeholders in the market. For example, if the price of a good increases, consumers may reduce their demand for that good, while producers may increase their supply. In some cases, price changes can also lead to changes in the allocation of resources, as producers may shift their production towards goods that are more profitable to produce at the new price.
Price elasticity of demand	2.7	Price elasticity of demand is a measure of how responsive the quantity demanded of a good or service is to a change in its price. It is calculated as the percentage change in the quantity demanded divided by the percentage change in the price. If the price elasticity of demand is greater than one, demand is said to be elastic, meaning that the quantity demanded is highly responsive to changes in price. If it is less than one, demand is said to be inelastic, meaning that the quantity demanded is not very responsive to changes in price. The factors that influence the price elasticity of demand include the availability of substitutes, the proportion of income spent on the good or service, the time horizon over which the price change occurs, and the extent to which the good or service is considered a necessity or a luxury.
Price elasticity of supply	2.8	Price elasticity of supply is a measure of how responsive the quantity supplied of a good or service is to a change in its price. It is calculated as the percentage change in the quantity supplied divided by the percentage change in the price. If the price elasticity of supply is greater than one, supply is said to be elastic, meaning that the quantity supplied is highly responsive to changes in price. If it is less than one, supply is said to be inelastic, meaning that the quantity supplied is not very responsive to changes in price. The factors that influence the price elasticity of supply include the availability of inputs, the time horizon over which the price change occurs, the flexibility of production processes, and the extent to which the good or service is produced by a competitive market or a monopoly.
Market Economic Systems	2.9	A market economic system is an economic system in which the allocation of resources is determined primarily by the interactions of buyers and sellers in markets, without significant government intervention. In a market economy, the prices of goods and services are determined by supply and demand, and resources are allocated to their most valued uses by the price system. Market economies are characterized by private property rights, voluntary exchange, competition, and a profit motive. These features encourage efficiency and innovation in the use of resources, as individuals and firms are incentivized to produce goods and services that are in demand and to use resources in the most efficient manner.
Market Failure	2.10	Market failure occurs when the allocation of resources in a market economy is inefficient, resulting in a suboptimal level of production and consumption of goods and services. There are several types of market failure, including externalities, public goods, information asymmetry, and market power. Externalities occur when the production or consumption of a good or service has spillover effects on third parties, which are not reflected in the market price. Public goods are goods that are non-excludable and non-rivalrous, meaning that they are difficult to exclude people from consuming and consumption by one person does not reduce the amount available for others. Information asymmetry occurs when one party in a transaction has more information than the other party. Market power occurs when a firm has the ability to set prices above the competitive level due to its dominance in the market. Market failures can result in a misallocation of resources, leading to either underproduction or overproduction of goods and services, as well as a lack of investment in public goods and services that are necessary for the well-being of society. Governments can intervene in the economy to correct market failures, for example through regulation, taxation, or the provision of public goods and services. However, government intervention can also result in inefficiencies and unintended consequences, and it is important to consider the costs and benefits of different policy options in addressing market failures.
Mixed Economic Systems	2.11	A mixed economic system is an economic system that combines elements of both market and command economies. In a mixed economy, the allocation of resources is determined by a combination of market forces and government intervention. The government in a mixed economy may intervene in the market to correct market failures, promote social welfare, or provide public goods and services. However, the extent and nature of government intervention vary depending on the specific mixed economic system. Mixed economies typically allow for private ownership of property and resources, and individuals and firms are free to engage in market transactions. However, the government may regulate or restrict certain activities, such as monopolies, to promote competition and ensure a fair distribution of resources.

Unit 3: Microeconomic Decision Makers

This unit focuses on microeconomic decision-makers, including consumers and firms, and their role in shaping economic outcomes.

Subtopic	Subtopic Number	Key points
Money and Banking	3.1	Money is a medium of exchange that is widely accepted in transactions for goods and services. It serves as a store of value and a unit of account, allowing for easy comparison of the relative value of goods and services. Banks play a crucial role in the economy by providing a variety of financial services, such as deposit accounts, loans, and credit cards. They also create money through the process of fractional reserve banking, where they hold only a fraction of deposits as reserves and lend out the rest. The central bank is responsible for managing the money supply and regulating the banking system. It can influence the money supply through a variety of tools, such as open market operations, reserve requirements, and discount rate policies.
Households	3.2	Households are the basic unit of consumption in an economy. They are made up of individuals or groups of people living together and sharing resources, such as a family or roommates. Households make consumption decisions based on their preferences, budget constraints, and the prices of goods and services. They also participate in the labor market as workers, earning income to support their consumption. Households play a role in the economy as consumers of goods and services, and their spending patterns can have an impact on the demand for certain products and the overall level of economic activity. They also provide labor to firms, which use this labor to produce goods and services.
Workers	3.3	Workers are individuals who supply their labor to firms in exchange for wages or salaries. They are a key factor of production in the economy and play a crucial role in the production of goods and services. Workers’ labor supply is affected by a variety of factors, including their preferences, skill levels, and the wages they are offered. The labor market is also influenced by factors such as technological change, globalization, and government policies, which can affect the demand for labor and the availability of jobs. Wages are determined by the intersection of labor supply and labor demand in the labor market. The level of wages can have an impact on the standard of living of workers and can also affect the profitability of firms and the level of economic growth.
Trade Unions	3.4	Trade unions are organizations that represent workers in collective bargaining with employers. They aim to improve the wages, benefits, and working conditions of their members, as well as to advocate for policies that benefit workers more broadly. Trade unions can have a significant impact on the labor market by negotiating with employers to set wages and working conditions, as well as advocating for government policies that support workers’ rights and interests. The bargaining power of trade unions depends on the level of unionization in a particular industry or sector, as well as the strength of the economy and the political climate. There can be trade-offs between the benefits of trade unions for their members and the broader impacts on the economy. For example, higher wages and benefits negotiated by trade unions can lead to increased costs for employers, potentially reducing their competitiveness and leading to higher prices for consumers.
Firms	3.5	Firms are economic entities that produce goods and services using various inputs, such as labor, capital, and raw materials. They are a key component of the production process and contribute to the overall level of economic activity in an economy. Firms make production decisions based on their goals, available resources, and market conditions. They also compete with other firms in the market, which can influence their pricing decisions and overall profitability. The behavior of firms can have a significant impact on the broader economy, particularly in terms of employment, investment, and economic growth. For example, firms that invest in new technology and production methods may be more productive and profitable, leading to increased economic growth and higher living standards.
Firms and Production	3.6	Firms engage in the production of goods and services using various inputs, such as labor, capital, and raw materials. They must make decisions about what to produce, how much to produce, and how to produce it efficiently in order to maximize profits. The production process can be divided into stages, such as primary production, manufacturing, and distribution. Each stage involves different types of inputs and processes, and firms may specialize in one or more stages of the production process. Firms can use various production methods to increase efficiency and reduce costs. For example, they may invest in new technology, streamline their production processes, or outsource certain functions to other firms or countries where labor is cheaper.
Firms’ costs, revenue and objectives	3.7	Firms aim to maximize their profits, which are the difference between their total revenue and total costs. They must make decisions about how much to produce, what price to charge, and what inputs to use in order to achieve this objective. Firms incur various types of costs in the production process, including fixed costs (such as rent and salaries) and variable costs (such as raw materials and utilities). They must balance these costs with the price they charge for their products in order to make a profit. Revenue is the income that a firm generates from the sale of its products. Firms can increase their revenue by increasing their sales volume or by increasing the price of their products.
Market structure	3.8	Market structure refers to the degree of competition and market power in a particular market. It can be classified into four main types: perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is a market structure in which there are many small firms producing identical products and no single firm has significant market power. Prices are determined by supply and demand, and firms are price takers. Monopolistic competition is a market structure in which there are many small firms producing differentiated products, such as restaurants or clothing stores. Each firm has some market power, but competition is still present, and prices may be influenced by advertising and product differentiation. Oligopoly is a market structure in which a small number of large firms dominate the market and have significant market power. These firms may engage in strategic pricing and advertising decisions to compete with each other, but the barriers to entry may limit competition from new firms. Monopoly is a market structure in which a single firm dominates the market and has complete market power. This can result in higher prices and reduced output, as the monopolist does not face competition from other firms. Governments may regulate monopolies or break them up to promote competition and protect consumers.

Unit 4: Government and the Macroeconomy

As outlined in the IGCSE Economics syllabus, this unit examines the role of government in managing the macroeconomy, a key topic to study effectively for Economics IGCSE.

Subtopic	Subtopic Number	Key points
The role of the government	4.1	Governments play an important role in the macroeconomy by implementing policies to stabilize the economy and promote economic growth. This includes fiscal policy and monetary policy. Fiscal policy refers to the use of government spending and taxation to influence the level of economic activity. Governments may increase spending or decrease taxes to stimulate demand and boost economic growth, or reduce spending or increase taxes to reduce inflation. Monetary policy refers to the use of interest rates and other monetary tools to influence the supply of money and credit in the economy. Central banks may lower interest rates to encourage borrowing and investment, or raise interest rates to curb inflation.
The macroeconomic aims of the government	4.2	The government has several macroeconomic aims, including stable economic growth, low inflation, low unemployment, and a stable balance of payments. Stable economic growth refers to the sustained increase in the production of goods and services over time. Governments aim to achieve steady economic growth, as this leads to higher living standards and reduces poverty and unemployment. Low inflation refers to a sustained increase in the general price level of goods and services over time. High levels of inflation can lead to reduced consumer purchasing power, decreased investment, and reduced economic growth. Governments aim to maintain a stable rate of inflation to promote economic stability. Low unemployment refers to the number of people who are actively seeking employment but are unable to find work. High levels of unemployment can lead to decreased consumer spending and decreased economic growth. Governments aim to reduce unemployment through policies that stimulate economic growth and job creation.
Fiscal Policy	4.3	Fiscal policy refers to the use of government spending and taxation to influence the level of economic activity in a country. Governments may use expansionary fiscal policy to stimulate economic growth during times of recession or slowdown. This involves increasing government spending and/or reducing taxes to boost demand and encourage investment. Conversely, governments may use contractionary fiscal policy during times of high inflation to reduce demand and cool the economy. This involves reducing government spending and/or increasing taxes to reduce demand and control inflation. Fiscal policy can also be used to address income inequality by redistributing wealth through taxes and government spending. For example, progressive taxation and social welfare programs can help to reduce poverty and promote more equitable economic growth.
Monetary Policy	4.4	Monetary policy refers to the use of central bank tools to influence the money supply and interest rates in an economy to achieve specific macroeconomic objectives. Central banks may use expansionary monetary policy to stimulate economic growth during times of recession or slowdown. This involves increasing the money supply and/or reducing interest rates to encourage investment and borrowing. Conversely, central banks may use contractionary monetary policy during times of high inflation to reduce demand and cool the economy. This involves decreasing the money supply and/or increasing interest rates to reduce borrowing and spending. One of the main tools of monetary policy is open market operations, where the central bank buys or sells government bonds to increase or decrease the money supply. Other tools include changing reserve requirements for banks and adjusting the discount rate at which banks can borrow from the central bank.
Supply-side Policy	4.5	Supply-side policy refers to the use of policies to increase the productive capacity of the economy and promote long-term economic growth. One common supply-side policy is to reduce the regulatory burden on businesses, making it easier for firms to operate and expand. This can lead to increased investment and job creation. Another supply-side policy is to invest in education and training, which can increase the skills of workers and improve productivity. Tax policies can also be used as a supply-side policy tool. For example, cutting corporate tax rates can incentivize businesses to invest and expand, while reducing income tax rates can encourage workers to work more and increase their skills. Finally, supply-side policies can also focus on improving the infrastructure of the economy, such as transportation and communication networks, which can improve efficiency and productivity.
Economic Growth	4.6	Economic growth refers to the increase in the level of output or income in an economy over a period of time. Economic growth is typically measured by the growth in Gross Domestic Product (GDP), which is the total value of goods and services produced in an economy over a given period of time. Economic growth can be achieved through a variety of factors, including increased investment, technological advancements, improvements in infrastructure, and improvements in education and training. Economic growth is important because it can lead to increased living standards, higher levels of employment, and improved social outcomes such as better healthcare and education.
Employment and Unemployment	4.7	Employment refers to the number of people who are currently working in the economy, while unemployment refers to the number of people who are able and willing to work but cannot find a job. Unemployment is a major issue for any economy, as it can lead to lower economic growth, reduced social welfare, and increased inequality. The level of unemployment in an economy is influenced by a variety of factors, including the state of the economy, the level of government intervention, and the skills and qualifications of workers. Governments can use a variety of policies to address unemployment, including demand-side policies such as fiscal stimulus and monetary policy, as well as supply-side policies such as education and training programs, labor market reforms, and incentives for firms to invest and create jobs.
Inflation and Deflation	4.8	Inflation is the rate at which the general price level of goods and services in an economy is rising over time. Deflation, on the other hand, is when the general price level is decreasing over time. Inflation can be caused by several factors, including an increase in demand, a decrease in supply, or an increase in production costs. Deflation is often caused by a decrease in demand, a surplus of goods, or technological advancements that reduce production costs. Inflation and deflation have significant impacts on the economy, affecting consumer and business behavior, financial markets, and government policies. For example, high inflation rates can lead to a decrease in purchasing power and savings, while deflation can lead to hoarding and decreased spending. Central banks can use monetary policy tools, such as adjusting interest rates or the money supply, to manage inflation and deflation. Governments can also use fiscal policies, such as taxation and government spending, to stimulate or dampen economic growth and inflation/deflation.

Unit 5: Economic Development

Economic development is a critical aspect of IGCSE Economics. This unit explores the challenges and strategies for achieving economic growth and development.

Subtopic	Subtopic Number	Key points
Living standards	5.1	Living standards refer to the overall level of well-being and quality of life of individuals in a society, which is influenced by factors such as income, education, healthcare, and access to basic necessities. Economic growth is often seen as a key driver of improving living standards, as it can lead to increased incomes and job opportunities, which can in turn support improved access to goods and services. However, economic growth is not the only factor that affects living standards. Factors such as income inequality, environmental degradation, and access to healthcare and education can also have significant impacts on living standards. Governments can implement policies to support living standards, such as increasing access to healthcare and education, implementing progressive taxation systems, and promoting sustainable development practices. International organizations, such as the United Nations, also work to promote sustainable development and support improvements in living standards globally.
Poverty	5.2	Poverty refers to a state of inadequate income, resources, and living standards relative to the average standard of living in a society. It is a widespread issue affecting many countries and can have a range of negative impacts on individuals and society. Poverty can be caused by various factors such as unemployment, low wages, lack of education, and discrimination. It is often concentrated in certain groups such as children, women, and minorities. Poverty can lead to a range of negative consequences, such as malnutrition, poor health, limited access to education, and limited opportunities for economic and social mobility. Governments can implement policies to reduce poverty, such as social welfare programs, minimum wage laws, and policies that promote economic growth and job creation. International organizations, such as the United Nations, also work to reduce poverty and promote sustainable development through initiatives such as the Sustainable Development Goals (SDGs).
Population	5.3	Population refers to the number of people living in a particular geographic area or region. Population growth can have significant impacts on economic, social, and environmental factors. Factors such as birth rates, death rates, migration, and life expectancy can affect population growth rates. Higher birth rates and lower death rates generally lead to population growth, while higher death rates and lower birth rates can lead to population decline. Rapid population growth can put pressure on resources and infrastructure, leading to issues such as overcrowding, pollution, and depletion of natural resources. On the other hand, declining population growth rates can lead to issues such as an aging population and a shortage of labor.
Differences in Economic Development between countries	5.4	Economic development refers to the sustained improvement in living standards and economic growth over time. However, the level of economic development can vary significantly between countries due to differences in factors such as natural resources, geography, historical events, and government policies. Developed countries typically have high levels of per capita income, advanced infrastructure, and a highly skilled workforce. In contrast, developing countries may have limited access to resources and technology, inadequate infrastructure, and lower levels of education and healthcare. Globalization, trade, and investment can impact economic development by providing developing countries with access to markets, technology, and capital. However, the benefits of globalization are not always evenly distributed, and there can be winners and losers within and between countries.

Unit 6: International Trade and Globalization

In alignment with the IGCSE Economics curriculum, this unit explores international trade and globalization, providing valuable insights for students seeking guidance on how to study for Economics IGCSE in a global context

Subtopic	Subtopic Number	Key points
International Specialization	6.1	International specialization is the concentration of production on specific goods and services in which a country has a comparative advantage. This means that a country can produce a particular good or service at a lower opportunity cost than another country. International specialization enables countries to benefit from trade by exporting the goods and services they produce most efficiently and importing those that they do not produce as efficiently. This allows for greater economic efficiency and higher living standards. International specialization can be driven by a country’s natural resources, labor force, technological capabilities, and institutional arrangements. For example, a country with abundant natural resources may specialize in the production of commodities such as oil or minerals, while a country with a highly skilled workforce may specialize in high-tech industries.
Globalization, free trade and protection	6.2	Globalization refers to the process of increasing economic, cultural, and political interconnectedness between countries. It has led to greater trade and investment flows, as well as increased movement of people across borders. Free trade refers to the removal of barriers to trade, such as tariffs and quotas, between countries. The theory behind free trade is that it promotes economic efficiency and leads to lower prices for consumers. Protectionism refers to the use of trade barriers to protect domestic industries from foreign competition. These barriers can take the form of tariffs, quotas, or subsidies to domestic producers. The goal of protectionism is to promote domestic employment and economic growth, but it can lead to higher prices for consumers and retaliation from trading partners.
Foreign exchange rates	6.3	Foreign exchange rate is the price of one currency expressed in terms of another currency. Exchange rates are determined by the forces of demand and supply in the foreign exchange market. A rise in the exchange rate of a currency makes that currency more expensive relative to other currencies, while a fall in the exchange rate makes it cheaper. The exchange rate affects international trade, investment and tourism, and can also impact a country’s balance of payments.
Current account of balance of payments	6.4	The Current Account of Balance of Payments is a record of a country’s transactions with the rest of the world in goods, services, and income. The Current Account includes the balance of trade, which is the difference between a country’s exports and imports of goods and services. Other components of the Current Account include income received from investments abroad and payments made to foreign investors. A deficit in the Current Account means that a country is importing more than it is exporting and may lead to a reduction in the country’s foreign reserves and currency value. A surplus, on the other hand, means that a country is exporting more than it is importing and can result in an increase in foreign reserves and currency value.

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