Based on Cambridge International AS & A Level Economics (9708) 2026-2028 Official Syllabus

AS Level content

• Check out our CAIE AS Level Economics Content Overview.
• Check out our Free CAIE AS Economics Topic Question Exercises.

1 Basic economic ideas and resource allocation (AS Level)

Candidates will explore the fundamental problem that underpins economics and a model highlighting some of the main issues that arise from this problem. They will examine the factors of production, their rewards and the advantages and disadvantages of specialisation in the use of resources. Candidates will assess the different economic systems that are used to allocate scarce resources, considering the strengths and weaknesses of these systems, and they will be introduced to some of the terms and methodology used by economists. The key concepts that are the main focus for this topic are: scarcity and choice; the margin and decision-making; time.

• Check out our Basic economic ideas and resource allocation Overview (AS Level).

1.1 Scarcity, choice and opportunity cost

Check out our Scarcity, choice and opportunity cost GUIDE.
Check out our Scarcity, choice and opportunity cost Topic Question (Easy).
Check out our Scarcity, choice and opportunity cost Topic Question (Hard).

• 1.1.1 fundamental economic problem of scarcity
• 1.1.2 need to make choices at all levels (individuals, firms, governments)
• 1.1.3 nature and definition of opportunity cost, arising from choices
• 1.1.4 three basic questions of resource allocation
  • what to produce
  • how to produce
  • for whom to produce

1.2 Economic methodology

Check out our Economic methodology GUIDE.

• 1.2.1 economics as a social science
• 1.2.2 positive and normative statements (the distinction between facts and value judgements)
• 1.2.3 meaning of the term ceteris paribus
• 1.2.4 importance of the time period (short run, long run, very long run)

1.3 Factors of production

Check out our Factors of production GUIDE.

• 1.3.1 nature and definition of factors of production: land, labour, capital and enterprise
• 1.3.2 difference between human capital and physical capital
• 1.3.3 rewards to the factors of production
• 1.3.4 division of labour and specialisation
• 1.3.5 role of the entrepreneur in contemporary economies: risk and organisation of the other factors of production

1.4 Resource allocation in different economic systems

Check out our Resource allocation in different economic systems GUIDE.

• 1.4.1 decision-making in market economy, planned economy and mixed economy
• 1.4.2 resource allocation in these economic systems

1.5 Production possibility curves

Check out our Production possibility curves GUIDE.

• 1.5.1 nature and meaning of a production possibility curve (PPC)
• 1.5.2 shape of the PPC: constant and increasing opportunity costs
• 1.5.3 causes and consequences of shifts in a PPC
• 1.5.4 significance of a position within a PPC

1.6 Classification of goods and services

Check out our Classification of goods and services GUIDE.

• 1.6.1 nature and definition of free goods and private goods (economic goods)
• 1.6.2 nature and definition of public goods
• 1.6.3 nature and definition of merit goods: under-consumption as a result of imperfect information in the market
• 1.6.4 nature and definition of demerit goods: over-consumption as a result of imperfect information in the market

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2 The price system and the microeconomy (AS Level)

Check out our The price system and the microeconomy OVERVIEW (AS Level).

Candidates will examine how markets and the price mechanism determine the allocation of resources, with particular emphasis on these key concepts: scarcity and choice; equilibrium and disequilibrium. The importance of elasticity within the market will be analysed drawing on the key concept of time. Candidates should use the model of demand and supply to analyse markets for a range of commodities, for example primary products, foodstuffs, transport and foreign currency. Candidates will also consider the significance of consumer surplus and producer surplus, which are of relevance to the key concept of efficiency and inefficiency.

2.1 Demand and supply curves

Check out our Demand and supply curves GUIDE.
Check out our Demand and supply curves Topic Question (Easy).

• 2.1.1 effective demand
• 2.1.2 individual and market demand and supply
• 2.1.3 determinants of demand
• 2.1.4 determinants of supply
• 2.1.5 causes of a shift in the demand curve (D)
• 2.1.6 causes of a shift in the supply curve (S)
• 2.1.7 distinction between the shift in the demand or supply curve and the movement along these curves

2.2 Price elasticity, income elasticity and cross elasticity of demand

Check out our Price elasticity of demand GUIDE.
Check out our Income elasticity of demand GUIDE.
Check out our Cross elasticity of demand GUIDE.

Check out our PED, YED, and XED Topic Questions (Easy).

• 2.2.1 definition of price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED)
• 2.2.2 formulae for and calculation of price elasticity, income elasticity and cross elasticity of demand
• 2.2.3 significance of relative percentage changes, the size and sign of the coefficient of:
  • price elasticity of demand
  • income elasticity of demand
  • cross elasticity of demand
• 2.2.4 descriptions of elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic
• 2.2.5 variation in price elasticity of demand along the length of a straight-line demand curve
• 2.2.6 factors affecting:
  • price elasticity of demand
  • income elasticity of demand
  • cross elasticity of demand
• 2.2.7 relationship between price elasticity of demand and total expenditure on a product
• 2.2.8 implications for decision-making of price elasticity, income elasticity and cross elasticity of demand

2.3 Price elasticity of supply

• 2.3.1 definition of price elasticity of supply (PES)
• 2.3.2 formula for and calculation of price elasticity of supply
• 2.3.3 significance of relative percentage changes, the size and sign of the coefficient of price elasticity of supply
• 2.3.4 factors affecting price elasticity of supply
• 2.3.5 implications for speed and ease with which firms react to changed market conditions

2.4 The interaction of demand and supply

• 2.4.1 definition of market equilibrium and disequilibrium
• 2.4.2 effects of shifts in demand and supply curves on equilibrium price and quantity
• 2.4.3 relationships between different markets:
  • joint demand (complements)
  • alternative demand (substitutes)
  • derived demand
  • joint supply
• 2.4.4 functions of price in resource allocation; rationing, signalling (transmission of preferences) and incentivising

2.5 Consumer and producer surplus

• 2.5.1 meaning and significance of consumer surplus
• 2.5.2 meaning and significance of producer surplus
• 2.5.3 causes of changes in consumer and producer surplus
• 2.5.4 significance of price elasticity of demand and of supply in determining the extent of these changes

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3 Government microeconomy intervention (AS Level)

Check out our Government microeconomy intervention OVERVIEW (AS Level).

Candidates will explore the reasons for government intervention in individual markets, the methods of intervention deployed, the advantages and disadvantages of the methods and their effectiveness. Candidates will also consider why market economies create income and wealth inequality, and will evaluate the strengths and weaknesses of policies designed to redistribute income and wealth. The key concepts that support these topics are: the margin and decision-making; efficiency and inefficiency; the role of government and the issues of equality and equity.

3.1 Reasons for government intervention in markets

• 3.1.1 addressing the non-provision of public goods
• 3.1.2 addressing the over-consumption of demerit goods and the under-consumption of merit goods
• 3.1.3 controlling prices in markets

3.2 Methods and effects of government intervention in markets

Check out our Methods and effects of government intervention in markets Topic Question (Easy).

• 3.2.1 impact and incidence of specific indirect taxes
• 3.2.2 impact and incidence of subsidies
• 3.2.3 direct provision of goods and services
• 3.2.4 maximum and minimum prices
• 3.2.5 buffer stock schemes
• 3.2.6 provision of information

3.3 Addressing income and wealth inequality

• 3.3.1 difference between income as a flow concept and wealth as a stock concept
• 3.3.2 measuring income and wealth inequality:
  • Gini coefficient (calculation not required)
• 3.3.3 economic reasons for inequality of income and wealth
• 3.3.4 policies to redistribute income and wealth:
  • minimum wage
  • transfer payments
  • progressive income taxes, inheritance and capital taxes
  • state provision of essential goods and services

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4 The Macroeconomy (AS Level)

Candidates will consider national income as the most important measurement of macroeconomic performance and analyse its determination by the two main macroeconomic models: the circular flow of income, and Aggregate Demand and Aggregate Supply (AD/AS). The key concepts central to this work are: equilibrium and disequilibrium; time. Candidates will examine the measurement, causes and consequences of three key indicators of a country’s macroeconomic performance: economic growth, unemployment and price stability. These key concepts will provide useful contexts here: progress and development; equilibrium and disequilibrium.

4.1 National income statistics

Check out our National income statistics Topic Question (Easy).

• 4.1.1 meaning of national income
• 4.1.2 measurement of national income:
  • Gross Domestic Product (GDP)
  • Gross National Income (GNI)
  • Net National Income (NNI)
• 4.1.3 adjustment of measures from market prices to basic prices
• 4.1.4 adjustment of measures from gross values to net values

4.2 Introduction to the circular flow of income

• 4.2.1 circular flow of income in a closed economy and an open economy: the flow of income between households, firms and government and the international economy
• 4.2.2 injections and leakages (multiplier not required)
• 4.2.3 equilibrium and disequilibrium (marginal and average propensities not required)

4.3 Aggregate Demand and Aggregate Supply analysis

• 4.3.1 definition of Aggregate Demand (AD)
• 4.3.2 components of AD and their meanings: $$AD = C + I + G + (X – M)$$
• 4.3.3 determinants of AD (detailed knowledge of the components of AD is not required)
• 4.3.4 shape of the AD curve (downward sloping)
• 4.3.5 causes of a shift in the AD curve
• 4.3.6 definition of Aggregate Supply (AS)
• 4.3.7 determinants of AS
• 4.3.8 shape of the AS curve in the short run (SRAS, upward sloping line or sweeping curve) and the long run (LRAS, either a vertical line or in three sections – highly elastic, upward sloping, vertical)
• 4.3.9 causes of a shift in the AS curve in the short run (SRAS) and in the long run (LRAS)
• 4.3.10 distinction between a movement along and a shift in AD and AS
• 4.3.11 establishment of equilibrium in the AD/AS model and the determination of the level of real output, the price level and employment
• 4.3.12 effects of shifts in the AD curve and the AS curve on the level of real output, the price level and employment

4.4 Economic growth

• 4.4.1 meaning of economic growth
• 4.4.2 measurement of economic growth
• 4.4.3 distinction between growth in nominal GDP and real GDP
• 4.4.4 causes of economic growth
• 4.4.5 consequences of economic growth

4.5 Unemployment

• 4.5.1 meaning of unemployment
• 4.5.2 measures of unemployment, with reference to possible difficulties in measurement
• 4.5.3 causes and types of unemployment: frictional, structural, cyclical, seasonal and technological
• 4.5.4 consequences of unemployment

4.6 Price stability

• 4.6.1 definition of inflation, deflation and disinflation
• 4.6.2 measurement of changes in the price level:
  • consumer price index (CPI)
  • possible difficulties in measurement
• 4.6.3 distinction between money values (nominal) and real data
• 4.6.4 causes of inflation: cost-push and demand-pull inflation
• 4.6.5 consequences of inflation

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5 Government macroeconomic intervention (AS Level)

Check out our Government macroeconomic intervention Topic Question (Easy).

Candidates will investigate government macroeconomic policy objectives and the three main types of policy available with which to meet these objectives: fiscal, monetary and supply-side policy. Candidates will consider what constitutes expansionary policy and contractionary policy and when it is appropriate to use each policy. They will also analyse the impact of each policy on the main macroeconomic performance indicators. The key concepts used here will be: the margin and decision-making; time; equilibrium and disequilibrium; progress and development.

5.1 Government macroeconomic policy objectives

• 5.1.1 use of government policy to achieve macroeconomic objectives: price stability, low unemployment, economic growth (policy conflicts and trade-offs are not required)

5.2 Fiscal policy

• 5.2.1 meaning of government budget
• 5.2.2 distinction between a government budget deficit and a government budget surplus
• 5.2.3 meaning and significance of the national debt
• 5.2.4 taxation:
  • types of taxes: direct/indirect, progressive/regressive/proportional
  • rates of tax: marginal and average rates of taxation (mrt, art)
  • reasons for taxation
• 5.2.5 government spending:
  • types of spending: capital (investment) and current
  • reasons for government spending
• 5.2.6 distinction between expansionary and contractionary fiscal policy
• 5.2.7 AD/AS analysis of the impact of expansionary and contractionary fiscal policy on the equilibrium level of national income and the level of real output, the price level and employment

5.3 Monetary policy

• 5.3.1 definition of monetary policy
• 5.3.2 tools of monetary policy: interest rates, money supply and credit regulations
• 5.3.3 distinction between expansionary and contractionary monetary policy
• 5.3.4 AD/AS analysis of the impact of expansionary and contractionary monetary policy on the equilibrium national income and the level of real output, the price level and employment

5.4 Supply-side policy

• 5.4.1 meaning of supply-side policy, in terms of its effect on LRAS curves
• 5.4.2 objectives of supply-side policy: increasing productivity and productive capacity
• 5.4.3 tools of supply-side policy, for example training, infrastructure development, support for technological improvement
• 5.4.4 AD/AS analysis of the impact of supply-side policy on the equilibrium national income and the level of real output, the price level and employment

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6 International economic issues (AS Level)

Candidates will explore the theory of international trade between countries and its implications for an economy. They will assess the case for free trade, the reasons for protectionism and the advantages and disadvantages of different protectionist measures. This will draw on these key concepts: the margin and decision-making; progress and development. Candidates will consider the current account of the balance of payments as a means of recording a country’s trading performance. They will analyse the roles of a floating exchange rate and the current account of the balance of payments within the economy’s macroeconomic performance. This will draw on these key concepts: equilibrium and disequilibrium; time.

6.1 The reasons for international trade

Check out our Free Trade, Absolute Advantage, Comparative Advantage Topic Question (Easy).

• 6.1.1 distinction between absolute and comparative advantage
• 6.1.2 benefits of specialisation and free trade (trade liberalisation), including the trading possibility curve
• 6.1.3 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
• 6.1.4 limitations of the theories of absolute and comparative advantage

6.2 Protectionism

• 6.2.1 meaning of protectionism in the context of international trade
• 6.2.2 different tools of protection and their impact:
  • tariffs
  • import quotas
  • export subsidies
  • embargoes
  • excessive administrative burdens (‘red tape’)
• 6.2.3 arguments for and against protectionism

6.3 Current account of the balance of payments

• 6.3.1 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

• 6.3.2 calculation of:

  • balance of trade in goods
  • balance of trade in services
  • balance of trade in goods and services
  • current account balance (CAB)

• 6.3.3 causes of imbalances in the current account of the balance of payments

• 6.3.4 consequences of imbalances in the current account of the balance of payments for the domestic and external economy

6.4 Exchange rates

• 6.4.1 definition of exchange rate

• 6.4.2 determination of a floating exchange rate

• 6.4.3 distinction between depreciation and appreciation of a floating exchange rate

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

• 6.4.5 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

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

• 6.5.1 government policy objective of stability of the current account

• 6.5.2 effect of fiscal, monetary, supply-side and protectionist policies on the current account

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A Level content (A2)

7 The price system and the microeconomy (A Level)

Candidates will examine the motivation and behaviour of individual consumers and firms in markets to gain a more detailed understanding of market forces and the price mechanism. They will consider the efficiency of markets and their participants, and the market failures that can arise from their activities. Both perfectly competitive and imperfect market structures will be analysed and appraised. This work will draw on these key concepts: scarcity and choice; the margin and decision-making; equilibrium and disequilibrium; efficiency and inefficiency; time.

7.1 Utility

Check out our Utility Topic Question (Easy).

Check out our Utility Topic Question (Hard).

• 7.1.1 definition and calculation of total utility and marginal utility
• 7.1.2 diminishing marginal utility
• 7.1.3 equi-marginal principle
• 7.1.4 derivation of an individual demand curve
• 7.1.5 limitations of marginal utility theory and its assumptions of rational behaviour

7.2 Indifference curves and budget lines

• 7.2.1 meaning of an indifference curve and a budget line
• 7.2.2 causes of a shift in the budget line
• 7.2.3 income, substitution and price effects for normal, inferior and Giffen goods
• 7.2.4 limitations of the model of indifference curves

7.3 Efficiency and market failure

• 7.3.1 definitions of productive efficiency and allocative efficiency
• 7.3.2 conditions for productive efficiency and allocative efficiency
• 7.3.3 Pareto optimality
• 7.3.4 definition of dynamic efficiency
• 7.3.5 definition of market failure
• 7.3.6 reasons for market failure

7.4 Private costs and benefits, externalities and social costs and benefits

• 7.4.1 definition and calculation of social costs (SC) as the sum of private costs (PC) and external costs (EC), including marginal social costs (MSC), marginal private costs (MPC) and marginal external costs (MEC)
• 7.4.2 definition and calculation of social benefits (SB) as the sum of private benefits (PB) and external benefits (EB), including marginal social benefits (MSB), marginal private benefits (MPB) and marginal external benefits (MEB)
• 7.4.3 definition of positive externality and negative externality
• 7.4.4 positive and negative externalities of both consumption and production
• 7.4.5 deadweight welfare losses arising from positive and negative externalities
• 7.4.6 asymmetric information and moral hazard
• 7.4.7 use of costs and benefits in analysing decisions (knowledge of net present value is not required)

7.5 Types of cost, revenue and profit, short-run and long-run production

• 7.5.1 short-run production function:

  • fixed and variable factors of production
  • definition and calculation of total product, average product and marginal product
  • law of diminishing returns (law of variable proportions)

• 7.5.2 short-run cost function:

  • definition and calculation of fixed costs (FC) and variable costs (VC)
  • definition and calculation of total, average and marginal costs (TC, AC, MC), including average total cost (ATC), total and average fixed costs (TFC, AFC) and total and average variable costs (TVC, AVC)
  • explanation of shape of short-run average cost and marginal cost curves

• 7.5.3 long-run production function:

  • no fixed factors of production
  • returns to scale

• 7.5.4 long-run cost function:

  • explanation of shape of long-run average cost curve
  • concept of minimum efficient scale

• 7.5.5 relationship between economies of scale and decreasing average costs

• 7.5.6 internal and external economies of scale

• 7.5.7 internal and external diseconomies of scale

• 7.5.8 definition and calculation of revenue: total, average and marginal revenue (TR, AR, MR)

• 7.5.9 definition of normal, subnormal and supernormal profit

• 7.5.10 calculation of supernormal and subnormal profit

7.6 Different market structures

• 7.6.1 perfect competition and imperfect competition: monopoly, monopolistic competition, oligopoly, natural monopoly

• 7.6.2 structure of the listed markets as explained by number of buyers and sellers, product differentiation, degree of freedom of entry and availability of information

• 7.6.3 barriers to entry and exit:

  • legal barriers
  • market barriers
  • cost barriers
  • physical barriers

• 7.6.4 performance of firms in different market structures:

  • revenues and revenue curves
  • output in the short run and the long run
  • profits in the short run and the long run
  • shutdown price in the short run and the long run
  • derivation of a firm’s supply curve in a perfectly competitive market
  • efficiency and X-inefficiency in the short run and the long run
  • contestable markets: features and implications
  • price competition and non-price competition
  • collusion and the Prisoner’s Dilemma in oligopolistic markets, including a two-player pay-off matrix

• 7.6.5 definition and calculation of the concentration ratio

7.7 Growth and survival of firms

• 7.7.1 reasons for different sizes of firms

• 7.7.2 internal growth of firms: organic growth and diversification

• 7.7.3 external growth of firms – integration (mergers and takeovers):

  • methods of integration:
  • horizontal
  • vertical (forwards and backwards)
  • conglomerate
  • reasons for integration
  • consequences of integration

• 7.7.4 cartels:

  • conditions for an effective cartel
  • consequences of a cartel

• 7.7.5 principal–agent problem arising from differing objectives of shareholders/owners and managers

7.8 Differing objectives and policies of firms

• 7.8.1 traditional profit-maximising objective of firms

• 7.8.2 an understanding of other objectives of firms:

  • survival
  • profit satisficing
  • sales maximisation
  • revenue maximisation

• 7.8.3 price discrimination – first, second and third degree:

  • conditions for effective price discrimination
  • consequences of price discrimination

• 7.8.4 other pricing policies:

  • limit pricing
  • predatory pricing
  • price leadership

• 7.8.5 relationship between price elasticity of demand and a firm’s revenue:

  • in a normal downward sloping demand curve
  • in a kinked demand curve

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8 Government microeconomic intervention (A Level)

Candidates will evaluate the various policy options available to government to tackle different forms of market failure, considering the advantages and disadvantages of the policies and how they improve the efficiency of resource allocation. They will also consider government failure and its causes and implications for economic efficiency. Candidates will develop a deeper understanding of income and wealth distribution by exploring equality, equity and efficiency and aspects of poverty. This will lead candidates to examine the operation of labour markets under both perfectly competitive and imperfect conditions and how government intervention can affect labour markets. The key concepts that underpin much of this work are: the margin and decision-making; equilibrium and disequilibrium; efficiency and inefficiency; time; the role of government and the issues of equality and equity.

8.1 Government policies to achieve efficient resource allocation and correct market failure

• 8.1.1 application and effectiveness of measures to tackle different forms of market failure:

  • specific and ad valorem indirect taxes
  • subsidies
  • price controls
  • production quotas
  • prohibitions and licences
  • regulation and deregulation
  • direct provision
  • pollution permits
  • property rights
  • nationalisation and privatisation
  • provision of information
  • behavioural insights and ‘nudge’ theory

• 8.1.2 government failure in microeconomic intervention:

  • definition of government failure
  • causes of government failure
  • consequences of government failure

8.2 Equity and redistribution of income and wealth

• 8.2.1 difference between equity and equality
• 8.2.2 difference between equity and efficiency
• 8.2.3 distinction between absolute poverty and relative poverty
• 8.2.4 the poverty trap
• 8.2.5 policies towards equity and equality, for example:
  • negative income tax
  • universal benefits and means-tested benefits
  • universal basic income

8.3 Labour market forces and government intervention

• 8.3.1 demand for labour as a derived demand

• 8.3.2 factors affecting demand for labour in a firm or an occupation

• 8.3.3 causes of shifts in and movement along the demand curve for labour in a firm or an occupation

• 8.3.4 marginal revenue product (MRP) theory:

  • definition and calculation of marginal revenue product
  • derivation of an individual firm’s demand for labour using marginal revenue product

• 8.3.5 factors affecting the supply of labour to a firm or to an occupation:

  • wage and non-wage factors

• 8.3.6 causes of shifts in and movement along the supply curve of labour to a firm or an occupation

• 8.3.7 wage determination in perfect markets:

  • equilibrium wage rate and employment in a labour market

• 8.3.8 wage determination in imperfect markets:

  • influence of trade unions on wage determination and employment in a labour market
  • influence of government on wage determination and employment in a labour market using a national minimum wage
  • influence of monopsony employers on wage determination and employment in a labour market

• 8.3.9 determination of wage differentials by labour market forces

• 8.3.10 transfer earnings and economic rent:

  • definition of transfer earnings
  • definition of economic rent
  • factors affecting transfer earnings and economic rent in an occupation

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9 The macroeconomy (A Level)

Candidates will develop a more detailed appreciation of the workings of the macroeconomy by studying the determinants of Aggregate Demand, the multiplier process and the role of money and banking. The cyclical nature of economic performance will be examined along with its implications for the main macroeconomic performance indicators: economic growth, low unemployment, price stability and balance of payments stability. Consideration will also be given to the sustainability and inclusivity of economic growth. Key concepts that are fundamental to these issues are: the margin and decision-making; time; equilibrium and disequilibrium; progress and development.

9.1 The circular flow of income

• 9.1.1 the multiplier process:

  • definition of the multiplier
  • formulae for and calculation of multiplier in a closed and open economy, with and without a government sector
  • calculation of:
  • average and marginal propensities to save (aps and mps)
  • average and marginal propensities to consume (apc and mpc)
  • average and marginal propensities to import (apm and mpm)
  • average and marginal rates of tax (art and mrt)
  • national income determination using AD and income approach with the multiplier process
  • calculation of effect of changing AD on national income using the multiplier

• 9.1.2 components of Aggregate Demand (AD) and their determinants:

  • consumption function: autonomous and induced consumer expenditure
  • savings function: autonomous and induced savings
  • autonomous and induced investment; the accelerator
  • government spending
  • net exports (exports minus imports)

• 9.1.3 full employment level of national income and equilibrium level of national income:

  • inflationary and deflationary gaps

9.2 Economic growth and sustainability

• 9.2.1 actual growth versus potential growth in national output
• 9.2.2 positive and negative output gaps
• 9.2.3 business (trade) cycle:
  • phases of the cycle
  • causes of the cycle
  • role of automatic stabilisers
• 9.2.4 policies to promote economic growth and their effectiveness
• 9.2.5 inclusive economic growth:
  • definition of inclusive economic growth
  • impact of economic growth on equity and equality
  • policies to promote inclusive growth
• 9.2.6 sustainable economic growth:
  • definition of sustainable economic growth
  • using and conserving resources
  • impact of economic growth on the environment and climate change
  • policies to mitigate the impact of economic growth on the environment and climate change

9.3 Employment/unemployment

• 9.3.1 definition of full employment
• 9.3.2 equilibrium and disequilibrium unemployment (including hysteresis)
• 9.3.3 voluntary and involuntary unemployment
• 9.3.4 natural rate of unemployment:
  • definition
  • determinants
  • policy implications
• 9.3.5 patterns and trends in (un)employment
• 9.3.6 mobility of labour:
  • forms of labour mobility: geographical and occupational
  • factors affecting labour mobility
• 9.3.7 policies to reduce unemployment and their effectiveness

9.4 Money and banking

• 9.4.1 definition, functions and characteristics of money

• 9.4.2 definition of money supply

• 9.4.3 quantity theory of money (MV = PT)

• 9.4.4 functions of commercial banks:

  • providing deposit accounts (demand deposit account, savings account)
  • lending money (overdrafts, loans)
  • holding or providing cash, securities, loans, deposits, equity
  • reserve ratio and capital ratio
  • objectives of commercial banks: liquidity, security, profitability

• 9.4.5 causes of changes in the money supply in an open economy:

  • commercial banks as sources of credit creation and the bank credit multiplier
  • role of a central bank
  • government deficit financing
  • quantitative easing
  • changes in the balance of payments

• 9.4.6 policies to reduce inflation and their effectiveness

• 9.4.7 demand for money: liquidity preference theory

• 9.4.8 interest rate determination: loanable funds theory and Keynesian theory

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10 Government macroeconomic intervention (A Level)

Candidates will develop their understanding of macroeconomic intervention by considering the challenges encountered by a government when trying to manage the macroeconomy to achieve its chosen macroeconomic objectives. Important trade-offs like the Phillips curve will be analysed along with other policy conflicts, and candidates will evaluate the effectiveness of different macroeconomic policies with regard to different macroeconomic objectives. The possibility of macroeconomic government failure will also be considered. These issues encompass the key concepts: scarcity and choice; the margin and decision-making; equilibrium and disequilibrium; efficiency and inefficiency; time; progress and development.

10.1 Government macroeconomic policy objectives

• 10.1.1 objectives in terms of inflation, balance of payments, unemployment, growth, development, sustainability and redistribution of income and wealth

10.2 Links between macroeconomic problems and their interrelatedness

• 10.2.1 relationship between the internal value of money and the external value of money
• 10.2.2 relationship between the balance of payments and inflation
• 10.2.3 relationship between growth and inflation
• 10.2.4 relationship between growth and the balance of payments
• 10.2.5 relationship between inflation and unemployment:
  • traditional Phillips curve
  • expectations-augmented Phillips curve (short- and long-run Phillips curve)

10.3 Effectiveness of policy options to meet all macroeconomic objectives

• 10.3.1 effectiveness of different policies in relation to different macroeconomic objectives:

  • fiscal policy including Laffer curve analysis
  • monetary policy
  • supply-side policy including market-based and interventionist policies
  • exchange rate policy
  • international trade policy

• 10.3.2 problems and conflicts arising from the outcome of these policies

• 10.3.3 existence of government failure in macroeconomic policies

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11 International economic issues (A Level)

Candidates will explore the international aspects of an economy further by considering the balance of payments in full and the strengths and weaknesses of using fixed and managed exchange rate systems. The process of economic development, the characteristics of countries at different levels/stages of development and the relationships between high-income and low-income countries will be investigated. Major issues examined include the appraisal of living standards, the role of international aid, the influence of multinational companies, the burden of external debt on many low-income countries and the process of globalisation. The key concepts most relevant to this work are: progress and development; scarcity and choice; time.

11.1 Policies to correct disequilibrium in the balance of payments

• 11.1.1 components of the balance of payments accounts: current account, financial account and capital account
• 11.1.2 effect of fiscal, monetary, supply-side, protectionist and exchange rate policies on the balance of payments
• 11.1.3 difference between expenditure-switching and expenditure-reducing policies

11.2 Exchange rates

• 11.2.1 measurement of exchange rates:

  • distinction between nominal and real exchange rates
  • trade-weighted exchange rates

• 11.2.2 determination of exchange rates under fixed and managed systems

• 11.2.3 distinction between revaluation and devaluation of a fixed exchange rate

• 11.2.4 changes in the exchange rate under different exchange rate systems

• 11.2.5 the effects of changing exchange rates on the external economy using Marshall-Lerner and J curve analysis

11.3 Economic development

• 11.3.1 classification of economies in terms of their level of development

• 11.3.2 classification of economies in terms of their level of national income

• 11.3.3 indicators of living standards and economic development:

  • monetary indicators including real per capita national income statistics (GDP, GNI, NNI) and purchasing power parity
  • issues of comparison using monetary indicators
  • non-monetary indicators
  • composite indicators:
  • Human Development Index (HDI)
  • Measure of Economic Welfare (MEW)
  • Multidimensional Poverty Index (MPI)
  • the Kuznets curve

• 11.3.4 comparison of economic growth rates and living standards:

  • over time
  • between countries

11.4 Characteristics of countries at different levels of development

• 11.4.1 population growth and structure:

  • measurement and causes of changes in birth rate, death rate, infant mortality and net migration
  • optimum population
  • level of urbanisation

• 11.4.2 income distribution:

  • calculation of Gini coefficient and Lorenz curve analysis

• 11.4.3 economic structure:

  • employment composition: primary, secondary and tertiary sectors
  • pattern of trade at different levels of development

11.5 Relationship between countries at different levels of development

• 11.5.1 international aid:

  • forms of aid
  • reasons for giving aid
  • effects of aid
  • importance of aid

• 11.5.2 trade and investment

• 11.5.3 role of multinational companies (MNCs):

  • definition of MNC
  • activities of MNCs
  • consequences of MNCs

• 11.5.4 Foreign Direct Investment (FDI):

  • definition of FDI
  • consequences of FDI

• 11.5.5 external debt:

  • causes of debt
  • consequences of debt

• 11.5.6 role of the International Monetary Fund (IMF)

• 11.5.7 role of the World Bank

11.6 Globalisation

• 11.6.1 meaning of globalisation and its causes and consequences

• 11.6.2 distinction between a free trade area, a customs union, a monetary union and full economic union

• 11.6.3 trade creation and trade diversion

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References

• Cambridge International AS & A Level Economics (9708) Syllabus overview https://www.cambridgeinternational.org/programmes-and-qualifications/cambridge-international-as-and-a-level-economics-9708/
• https://www.cambridgeinternational.org/Images/697423-2026-2028-syllabus.pdf

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