IB Economics Standard Level

This subject is broken down into 27 topics in 4 modules:

  1. Introduction to economics 2 topics
  2. Microeconomics 8 topics
  3. Macroeconomics 7 topics
  4. The global economy 10 topics
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  • 27
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  • 10,332
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This page was last modified on 28 September 2024.

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Economics

Introduction to economics

What is economics?

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What is economics?

Section 1: Defining Economics

  • Economics is a social science that explores how individuals, groups, and nations manage resources.
  • It is about making choices in the face of scarcity.
  • The central problem of economics revolves around scarce resources and unlimited wants.
  • Economics studies the production, distribution, and consumption of goods and services.
  • It can be split into two main branches: microeconomics, which focuses on individuals and businesses, and macroeconomics, which looks at the economy as a whole.

Section 2: Economic Systems

  • An economic system is the way a society organises the production, distribution, and consumption of goods and services.
  • There are three main types of economic systems: market economies, command economies, and mixed economies.
  • A market economy, also known as a capitalist economy, is one where decisions on production and consumption are made by individual producers and consumers based on their own self-interest.
  • A command economy, also known as a centrally planned economy, is one where decisions on production and consumption are made by a central authority, usually the government.
  • A mixed economy is a combination of market and command economies, where both the market and the government play a role in deciding what to produce, how to produce it, and for whom to produce it.

Section 3: Basic Economic Concepts

  • Supply and demand are fundamental concepts of economics. They determine the price and quantity of goods and services in a market.
  • The law of demand states that the quantity demanded of a good or service decreases as its price increases, ceteris paribus (all other things being equal).
  • The law of supply states that the quantity supplied of a good or service increases as its price increases, ceteris paribus.
  • An equilibrium price is the price where the quantity demanded equals the quantity supplied.
  • Opportunity cost is the value of the next best alternative given up when making a decision.

Section 4: The Role of Government in Economics

  • The government plays a crucial role in economics through setting macroeconomic policies, such as monetary and fiscal policy.
  • The government can also intervene in the market to correct market failures and to achieve a more equitable distribution of income and wealth.
  • Monetary policy involves managing the money supply and interest rates to control inflation and stabilise the economy.
  • Fiscal policy involves changing government spending and taxes to influence the level of demand in the economy.

Section 5: International Economics

  • International economics studies the economic interactions between different countries.
  • It covers topics such as trade, international finance, and development economics.
  • Key concepts include comparative advantage, which explains why countries trade, and exchange rates, which affect the price of imports and exports.
  • It also looks at the role of international organisations, such as the World Trade Organization and the International Monetary Fund.

Course material for Economics, module Introduction to economics, topic What is economics?

Economics

Macroeconomics

Demand management - monetary policy

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Demand management - monetary policy

Understanding Demand Management - Monetary Policy

Introduction to Monetary Policy

  • Monetary policy refers to the process by which a country's central bank controls the supply of money in the economy, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
  • These policies affect money supply and interest rates, which then influences overall spending, investment and savings in the economy.
  • The two main types of monetary policies are expansionary monetary policy and contractionary monetary policy.

Expansionary Monetary Policy

  • Expansionary monetary policy is when a central bank uses its tools to stimulate the economy.
  • This might come in the form of increasing the money supply or reducing interest rates which encourages borrowing and spending.
  • This type of policy is typically used during periods of economic downturn or recession to help stimulate economic growth and reduce unemployment.

Contractionary Monetary Policy

  • Contractionary monetary policy is the opposite of expansionary policy and is used to slow down economic growth to combat inflation.
  • The central bank takes actions to decrease the money supply or increase interest rates, which discourages borrowing and slows down spending.
  • This type of policy is typically used during periods of economic boom to prevent the economy from overheating and to combat rising inflation rates.

Tools of Monetary Policy

  • The main tools used in monetary policy include open market operations, discount rate and reserve requirements.
  • Open market operations involve the buying and selling of government bonds to regulate the money supply. When the central bank buys bonds, the money supply increases; when it sells bonds, the money supply decreases.
  • The discount rate is the rate of interest the central bank charges on its loans to commercial banks. Lowering the discount rate can encourage borrowing and expand the money supply.
  • The reserve requirement is the amount of cash that banks must hold in reserve against deposits made by their customers.

Impact of Monetary Policy

  • Monetary policy can have both short-term and long-term impacts on the economy and is a crucial tool for managing demand.
  • In the short term, an effective monetary policy can stimulate economic growth, reduce unemployment, and control inflation.
  • In the long term, it can help to ensure stable economic growth and keep inflation at a target level which is usually around 2%.

Application of Monetary Policy

  • It's important to note that the effectiveness of monetary policies can vary and is influenced by factors such as how well the policy is communicated, public expectations, global economic conditions, and the state of the economy when the policy is implemented.
  • There might also be a time lag between implementing monetary policy and seeing its effect on the economy.

Course material for Economics, module Macroeconomics, topic Demand management - monetary policy

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