ECONOMICS SYLLABUS

1. The Nature of Economics

2. Production, Economic Resources and Resource Allocation
3. Market and Prices
4. The Financial Sector
5. Economics Management: Policies and Goals
6. International Trade
7. Caribbean Economies In a Global Environment
 Section 1 Nature of Economics
 Economics is an analysis of the wat in which individuals allocate their resources to satisfy
their wants.

 Economy–this can be described as a range of economic activities where production,

distribution and consumption of goods and services for individuals within society take place.

 Scarcity- this means there is not enough of it to completely satisfy everyone’s wants.

 Choice refers to the ability of a consumer or producer to decide which good, service or
resource to purchase or provide from a range of possible options.

 Opportunity cost is what isgiven up due to the choice of choosing something else.

 Money cost is the cost of acquiring a good or service with available cash.

 Needs are things that people require to survive.

 Wants are things that a person would like to have but are not needed for survival.

 Short run – this is the period of time over which at least one of the factors of production is
fixed in supply.A time period lesser than four – six months.

 Long run – this is the period of timea firm need in order to change the amount of all the
factors of production it uses. A time period of greater than four-six months/one year.
Main sectors of the economy include:
 Primary Sectors
 Secondary Sectors
 Tertiary and Quaternary Sectors
Primary sector companies are directly engaged in activities utilizing natural resources, such as
mining and agriculture.
Secondary sector companies produce goods derived from the products within the primary sector
and include manufacturing.
Tertiary and quaternary sectors represent the services and knowledge-based economy and include
retail and information technology.

PPF/C- (Production Possibility Frontier/Curve)

This shows the efficiency of a country producing one good against another.

Influence of individual making economic decisions

 Personal Choice- it’s basically a person’s choice whether they choose to spend or save.

 Income- with more income persons can both save and spend. On the other hand, with less
income there is a lower possibility of saving.

 Peer Pressure- with pressure to spend from friends it causes individuals to spend more and
vice versa, with pressure to save it causes them to save more money.

 Level of Education- persons with a higher level of education are able to acquire a better
job with higher incomes with leads to them being able to save and spend and with lower
education this may not occur which may lead them to spend and not get the opportunity to
save.
Influence of firms making economic decisions
1. Costs- firms must ensure that the costs are not higher than their selling price to make a
profit.

Total Fixed Cost (TFC)- this is all the overheads of a firm such as rent for usage of land, as
well as maintenance cost, Fixed costs are usual fixed meaning they do not change easily.
 Total Variable Cost (TVC)- these costs are incurred when factors of production are
bought, these costs then to change very easily.

Total Cost (TC)- this is the combination of fixed and variable cost.
TC=TFC+TVC

Marginal Cost (MC) – This is the cost for an additional product produced.
MC= Change in the total cost/ Change in quantity

Note: to find average pf any cost one must add all items and divide it by the total
amount of units

Fig 5. TFC will remain at the same fixed amount while variable cost will continue to
increase thus also causing an increase in Total Cost

1. Profits- firms must ensure that they are making profits so that their business will not
decline.
2. Resource base- firms must know where they will acquire their factors of production so that
their business can operate.
3. Industrial relations- firms must keep a good relationship between their employees to
ensure that work will be done effectively and with maw productivity.
National Income- the total flow of good and services over a period of one year
Methods of measuring NI
Income= sum of the incomes received by the factors of production
Output =value of total output
Expenditure= spending on the national outputs + additions to stock
Section 2 Production, Economic Resources and Resource Allocation
 Production is the process of making or manufacturing goods and products from raw
materials or components to saleable products.

 Productivity refers to how much output can be produced with a given set of inputs.
Productivity increases when more output is produced.
What are factors of production?
Factors of production are resources that are the building blocks of the economy; they are what
people use to produce goods and services. Economists divide the factors of production into four
categories: land, labour, capital, and entrepreneurship.
 Land includes any natural resource used to produce goods and services; anything that
comes from the land. Some common land or natural resources are water, oil, copper,
natural gas, coal, and forests. Land resources are the raw materials in the production
process.
 Labour is the effort that people contribute to the production of goods and services.
 Capitalis any man-made aid to further production, this includes factories, machinery, etc.
 An entrepreneur is a person who combines the other factors of production - land, labour,
and capital - to earn a profit.
TERMS
Short run refers to a period when some factors of production are fixed, while others are variable. This
means that in the short run, a company's output can be increased or decreased by adjusting the
variable factors of production, but not the fixed ones.
long run refers to a period when all factors of production are variable. This means that in the long run,
a company can adjust all its inputs to produce output.
Goods -this is the production of a tangible commodity (meaning they can be seen and touched).
Services- this is a non-material that is intangible (they cannot be seen and touched).
Economies of scale occurs when more units of a good or service can be produced on a larger scale
with (on average) fewer input costs.
Diseconomies of scale occur when a company or business grows so large that the costs per unit
increases. The reasons for these are as follows, communication breakdown, lack of motivation, lack of
coordination, etc.
Division of labour- this is when workload is divided amongst workers.
Specification- this is when a worker is tasked to be knowledgeable in a specific work area.
Fixed costs are costs that do not change when sales or production volumes increase or decrease.
Variable costs are any expenses that change based on how much a company produces and sells. This
means that variable costs increase as production rises and decrease as production falls.
Total cost, in economics, the sum of all costs incurred by a firm in producing a certain level of output.
Total cost is the sum of fixed costs and variable costs.
Marginal cost is the extra cost incurred in producing one more unit of a product. It is the cost of
producing one additional item.
Rewards of the factors of production
Factor of Production Rewards
Land Rent
Labour Wage
Capital Interest
Entrepreneur Profit

Resource Allocation
These are the questions every society must answer.
 What to produce, and in what quantity?
A country can only produce some of the goods and services its people want. It must, therefore,
find some method of choosing which particular goods and services to produce.

 How should the goods and services be produced?

Some manufactured goods can be produced either by small firms using skilled labour or by
mass-production methods, in which capital equipment is used.

 For whom should the goods and services be produced?

Types of economic systems
Traditional- this is an economy is one in which a community operates on tradition, where
customs and habits are followed without change or adjustment. Most often, these communities are
self- sufficient and are also known as subsistence economies since their production levels result
only in their survival and very little else.
Command/Planned- this is an economy where all the economic decisions regarding resource
allocation are undertaken by the government or state.
Market/ Capitalist- this market is also known as the free market or capitalist economy. It is an
economy which is based on free trade, supply, and demand where individuals, households and
firms make the economic decisions. There is no government intervention, and the capital and land
are usually privately owned.
Mixed-this is an economy where there is a combination of a free market and a planned economy.
 MERITS AND DEMERITS OF AN ECONOMY
Types of Economies Advantages
Traditional Economies Basic economic questions
are already answered
Positions within society are
already established
Disadvantages
Inefficient provision of
goods and services
Inadequate use of skills in
relation to the factors of
production
No upward movement of
labour

Market/ Capitalist People have freedom to buy Government plays a small

the goods and services they role
want
Prices are determined by the Firms can influence prices
forces of demand and supply by altering their output

Command/ Planned All economic decisions are Inefficient allocation of

made by the government
Prices do not change
The government looks after
the best interest of the
public
resources by the government
Government cannot always
determine accurately the
level of demand
May lead to wastage,
corruption, terrorism

Mixed Economies Combination of free market Monopolies can be created

and planned economy since the economic question
are answered by firms
Competitive markets Inequitable distribution of
allocate the resources wealth can also arise

Types of business organizations in a free market and their features

Sole proprietorships- this is a business that can be owned and controlled by an individual, a
company or a limited liability partnership. 
Partnerships- this is a business structure made up of 2 or more people who distribute income or
losses between themselves.
Corporations- this is a legally established entity that can enter contracts, own assets, and incur
debt, as well as sue and be sued—all separately from its owner(s).

Advantages and disadvantages of division of labour

Advantages of Division of Labor
  Efficient Mastery (Specialization of labor) When workers specialize in a particular task, they
can perfect their technique and produce a higher quality product.
 Quicker Training. ...
 Productivity. ...
 Efficient Allocation of Workers. ...
 Cheaper Products. ...
 Higher Wages. ...
 Innovation.

Disadvantages of division of labor
 1) Lack of Craftsmanship: Division of labor does not make workers craftsmen. ...
 2) Monotony of Work: ...
 3) Over-dependence among Workers: ...
 4) Redundancy of Worker
Section 3 Materials and prices

 Market in economics term can be defined as process of linking buying and selling of goods

and services between buyers and sellers.

 Ceteris paribus is a Latin phrase used in economics that means "all other things being equal."

It is an assumption used to isolate the effect of a single variable on an outcome, while holding

all other variables constant.

 Supply refers to the market's ability to produce a good or service.

 Demand refers to the market's desire to purchase the good or service.

 Market equilibrium is a market state where the supply in the market intersects the demand in

the market.

 Price elasticity of demand is a measurement of the change in quantity demanded in relation to

a change in its price.

 An elastic demandis when a small change in one of the factors affecting demand causes a large

change in the quantity demanded. When calculated it is equal to more than one.

 Inelastic demand is when a small change in one of the factors affecting demand causes a small

change in the quantity demanded.When calculated it is equal to less than one.

 The market structurecan be defined as those characteristics which affect the behaviour of firms

within the industry in which they operate.

 Market failure is an economic term applied to a situation where consumer demand does not

equal the amount of a good or service supplied, and is, therefore, inefficient.

 Positive Externalities- These are the positive effects gained from a third party.

 Negative Externalities- These are the negative effects gained from a third party.
Demand-this is the quantity demanded at any given price over some given period.
Supply- this is the quantity of a commodity which is supplied at any given price over some given
period.

Law of demand- When prices increase, demand decreases and when price decreases, demand
increases.

Law of supply- When price increases, supply increases and when price decreases, supply
decreases.
Diagram showing the effect of demand on supply.

As the price increases, supply rises while demand declines. Conversely, as the price drops supply
constricts while demand grows. Levels of supply and demand for varying prices can be plotted on
a graph as curves.

Factors Influencing the movement of the demand curve

1. Changes in Income- when a person’s income increases, they then to demand more products at
the same price.
2. Change in the price of other goods.
a. Substitutes-when the price of the substitute decreases, it causes the alternative product
to be demanded more at the same price.

b. Complementary goods- these are products that must be used together, when the
demand for one product increase then it leads to an automatic increase in demand for
the other.
3. Change in taste and fashion- this is when there is a new fashion in style then it causes more
persons to demand that product at the same price because its popular.

Diagram showing the effect of supply on demand

 An increase in money supply causes a rightward shift in the aggregate demand curve. A
reduction in money supply, on the other hand, shifts the aggregate demand curve
leftwards.

Factors Influencing the movement of the supply Curve

1. Changes in the price of the factors of production – When the price of raw materials are
lowered it causes farmers to produce more since they must spend less on paying for
materials and can use that money to supply more.
2. Technical Progress- With the involvement of technology suppliers will be able to increase
productivity leading to an increase in supply.
3. Taxes and Subsidies- taxes causes an increase in production cause thus causing a decrease
in supply. On the other hand, subsidies reduce production cost leading to more money
being available for production.

Marker Equilibrium

TERMS
Price Elasticity of Demand (PED)- this is the measurement of the change in quantity demanded
because of the change in the price of the product or service.
Formula- PED=Percentage change in the quantity demanded/ percentage change in price
Diagram of Price Elasticity of Demand Elastic and Inelastic

Price Elasticity of Supply (PES)- this is the measurement of the change in quantity supplied
because of the change in the price of the product or service.
Formula- PES=Percentage change in the quantity supply/ percentage change in price
Diagram of Price Elasticity of Demand Elastic and Inelastic

An elastic demand or elastic supply is one in which the elasticity is greater than one,
indicating a high responsiveness to changes in price. An inelastic demand or inelastic supply
is one in which elasticity is less than one, indicating low responsiveness to price changes.

PERFECT ELASTIC AND INELASTIC

 Income Elasticity of Demand (YED)- this is the ratio of the percentage change in quantity
demanded to the percentage change in income.
Formula- Percentage change in quantity demanded/ Percentage change in income.
Cross elasticity of demand (XED)- This is the responsiveness of the demand for A to a change in
price of product B.
XED= Percentage change in quantity demanded for good X/ Percentage change in price of
good Y

Types of market structures

1. Perfect competition is a hypothetical market structure in which there are very many firms,
each of which represents an infinitesimal share of the market.

The graph shows that in perfect competition, each seller faces a demand curve for their
product that is a horizontal line at the market price, because firms can sell any number of units
at the market price. Each additional unit sold generates marginal revenue (MR) and average
revenue (AR) equal to the market price.
 2. A monopoly is a market structure where a single firm supplies the entire market, and there are
no close substitutes. Monopoly is the polar opposite of perfect competition.

3. An oligopoly is a market structure where a few large firms dominate the market.

The kinked demand curve model suggests that firms in an oligopoly will not respond to
changes in their rivals' prices in a uniform way. Instead, they will be more likely to maintain
their own prices if their rival raises its price but will be more likely to lower their own prices if
their rival lowers its price.

4. Monopolistic competition is a type of market structure where many companies are present in
an industry, and they produce similar but differentiated products.

The graphs shows that companies in a monopolistic competition make economic profits in the short
run, but in the long run, they make zero economic profit. The latter is also a result of the freedom of
entry and exit in the industry.
‘

Type of market structure Characteristics

Perfect Competition Many buyers, many sellers
Produce the same products
Freedom to enter and exit
Prices are determined by demand and supply

Monopoly Many buyers, one seller

The product produced is unique
There is not freedom to enter and exit
Prices are set by the monopoly

Oligopoly Many buyers, few sellers

Same products or different products can
beproduced
Other firms find it difficult to enter and leave
Firms compete based on prices and can even
decided to set similar prices which forms a
cartel.

Monopolistic Competition Many buyers, many sellers

Usually have the same product but they try to
differentiate it
Freedom to enter and leave
Each firm is its own price maker

Causes of Market Failure

1. Negative Externalities-This causes production cost to be way above the amount it
should be because supplier needs to pay additional for negative effect incurred. This
eventually leads to a rise in price of the overall item.
Effects of Negative Externalities on Supply and Demand Curve

Thes graphs show that negative externality provides costs to others who do not participate directly in
a transaction. This means that it shifts the real (social) demand curve and supply curve to the left.
 2. Positive Externalities- This causes production cost to be way below the amount it
should be because supplier gains through someone else (third party). This eventually
leads to decrease in price of the overall item.
3. Monopoly- Monopolies contribute to market failure because they limit efficiency,
innovation, and healthy competition.
4. Imperfect Information- A lack of perfect information can also lead to market
failure. When buyers and sellers don't have all the correct information they may buy or
sell a product at a higher or lower price than what would be reflective of its true benefit
or cost.

Market failure can lead to a variety of negative consequences, including:

1. Retrenchment: If a company is unable to compete in the market, it may be forced to reduce its
workforce or even shut down, leading to job losses and retrenchment.
2. Unemployment: Market failure can lead to a decrease in demand for goods and services, which can
result in reduced production and job losses, leading to unemployment.
3. Economic depression: Market failure can lead to a decrease in economic activity, which can result
in an economic depression, characterized by high unemployment, low economic growth, and reduced
consumer spending.
4. Rise in levels of poverty: Market failure can lead to a decrease in the availability of goods and
services, which can result in a rise in levels of poverty, particularly among vulnerable populations.
5. Decline in welfare of society: Market failure can lead to a decline in the welfare of society, as
resources are not allocated efficiently, leading to waste, inefficiency, and negative externalities

Section 4 The Financial Sector

Financial Sector:
The financial services sector is the part of an economy that provides financial services for individuals
and businesses. The financial sector is made up of firms and institutions that provide financial
services to customers. These include banks, insurance companies, brokers, and real estate firms.
Roles of the Financial sector
The financial services industry encompasses all roles that deal with managing and exchanging money.
Sometimes called the financial sector or financial services sector, this industry includes segments such
as banking (saving and giving loans), investing, insurance, and financial analysis.
The financial sector should provide the following services: (Function of the financial sector).
 Value exchange: a way of making payments.
 Intermediation: a way of transferring resources between savers and borrowers.
 Risk transfer: a means for pricing and allocating certain risks.
 Liquidity: a means of converting assets into cash without undue loss of value.

The Informal Sector- The informal economy is the diversified set of economic activities, enterprises,
jobs, and workers that are not regulated or protected by the state. The concept originally applied to
self-employment in small, unregistered enterprises.
Money is an item to be used as payment for goods and services.
Development of Money
Long ago persons used a barter system to trade, eventually metallic coins were used to pay for good
and services then paper money was developed to reduce the weight and increase portability.
The functions of money:
In economics, money serves three main functions:
medium of exchange, unit of account, and store of value.
I. As a medium of exchange, money is used to facilitate transactions by providing a common
means of payment that is widely accepted.
II. As a unit of account, money serves as a standard measure of value that allows people to
compare the relative worth of different goods and services.
III. as a store of value, money can be used to save wealth and preserve purchasing power over
time.

Qualities of money:
The qualities of money are durability, portability, divisibility, uniformity, limited supply, and
acceptability.
I. Durability means that money must be able to withstand wear and tear over time.
II. Portability means that money must be easy to carry and transport.
 III. Divisibility means that money must be easily divisible into smaller denominations.
IV. Uniformity means that all units of money must be identical in terms of value and
appearance.
V. Limited supply means that there must be a finite amount of money in circulation.
VI. Finally, acceptability means that money must be widely accepted as a medium of
exchange.

What is money supply?

Money supply refers to the total amount of money that is in circulation in an economy at a given time.
It includes physical currency, such as coins and banknotes, as well as digital forms of money, such as
bank deposits and electronic transfers.
Roles of the following terms:
I. Central bank
The central bank controls the money supply and implements monetary policy to keep inflation under
control, promote economic growth, maintain financial stability, manage the exchange rate, and issue
currency.
II. Commercial Banks
Commercial banks accept deposits, make loans, provide financial services, facilitate payments,
manage risk, and create money. They play a critical role in the economy by providing the
financial services that individuals, businesses, and governments need to grow and prosper.
III. Stock Exchange
The stock exchange plays a key role in the economy by providing a platform for companies to
raise capital, investors to buy and sell securities, setting prices, promoting transparency, and
driving economic growth.
IV. Share Market
The stock market helps companies raise money to fund operations by selling shares of stock,
and it creates and sustains wealth for individual investors.

V. Credit Union
Credit unions provide affordable credit, savings and deposit accounts, financial education,
community support, and democratic structure to their members.
VI. Development Bank
Development banks provide long-term financing, support infrastructure development, promote
small business development, support social and environmental initiatives, and provide
technical assistance to businesses and projects.
VII. Insurance Company
Insurance companies provide protection against risk, spread risk, promote financial stability,
offer investment opportunities, and promote safety and risk management practices.
VIII. Mutual Fund
 Mutual funds provide diversification, professional management, access to a range of asset
classes, liquidity, and convenience for investors.
IX. Building Society
Building societies provide affordable mortgage finance, savings accounts, support to local
communities, a mutual structure, and financial advice and education to their members.
X. Investment Trust Company
Investment trust companies provide diversified portfolios, professional management, liquidity,
convenience, and potential for capital appreciation to their investors.
XI. Informal Credit Institutions
Informal credit institutions are non-bank financial institutions that provide credit and other
financial services to individuals and businesses that may not have access to traditional banking
services. Some roles are:
Informal credit institutions provide credit, support local economies, offer flexibility, provide
financial education, and build social capital.
XII. Some examples of methods of saving informally are (Sou-sou, Box, Partner, Syndication,
Meeting Turns).

Financial Instruments
 Treasury notes are a type of government bond issued by the government of the Treasury.
They are low-risk investments that pay a fixed rate of interest every six months until maturity,
which ranges from 1 to 10 years. Treasury notes are used by investors and financial
institutions as a safe haven investment and as a benchmark for other interest rates. The US
government issues Treasury notes to finance its operations and pay for government programs.

 Treasury bonds are long-term debt securities issued by the government of the Treasury that
pay a fixed rate of interest every six months until maturity, which is more than 10 years.

 Corporate bonds are debt securities issued by corporations to raise capital. They offer a fixed
rate of interest to investors, who lend money to the corporation in exchange for the promise of
repayment of the principal amount plus interest at a future date. Corporate bonds are riskier
than US Treasury bonds, but less risky than stocks. They are used by investors and financial
institutions to diversify their portfolios and reduce risk, and by corporations to raise capital for
various purposes.

 A municipal bond is a type of debt security issued by state and local governments to raise
funds for public projects. Municipal bonds are considered safe investments because they are
backed by the taxing power of the issuer. They also offer tax advantages to investors.
 Equity securities are stocks or shares, which represent ownership in a company. When you
buy equity securities, you become a part owner of the company and have a claim on its assets
and earnings.
 Section 5: Economic Management: Policies and Goals
TERMS
 A national budget is a financial plan that outlines a government’s expected revenues and
expenditures for the upcoming fiscal year. It is used to manage finances and allocate resources
to different programs and initiatives.

 National income is the total income earned by a country's residents, businesses, and
government in a given period of time, usually one year. It is an important measure of a
country's economic performance and reflects the overall level of economic activity.

 Disposable income is the money that households have available to spend or save after
paying taxes and other mandatory expenses.

 National debt is the total amount of money that a government owes to its creditors. It is
incurred when a government spends more money than it collects in taxes and other sources
of revenue. High levels of national debt can lead to economic problems, but it can also be
used to finance important government programs and investments.

 Fiscal policy in economics refers to how the government adjusts its spending and taxation
policies to influence economic activity. It can be used to promote economic growth,
control inflation, reduce unemployment, and reduce income inequality.

 Fiscal deficit is the difference between the total revenue and total expenditure of a
government in a financial year. Fiscal deficit arises when the expenditure of a government
is more than the revenue generated by the government in a given fiscal year.

 Monetary policy in economics refers to how central banks use policy tools to control
inflation and influence economic growth and stability. It involves adjusting interest rates
and the money supply to impact economic activity.

 Economic growth in economics refers to the increase in production of goods and services
in an economy over time, which can lead to higher wages, more jobs, and greater
economic opportunities. It can be spurred by factors such as technological innovation,
increased investment, and improvements in infrastructure or education.

 Economic development in economics refers to the process by which a country improves

the economic, political, and social well-being of its citizens through factors such as
improving infrastructure, education, healthcare, and technology. The primary goal is to
 reduce poverty and improve the standard of living for individuals and communities, while
also promoting sustainable growth and development over the long term.

 Developing economy in economics is a country that has a low level of economic

development, high levels of poverty, and limited access to basic services such as
healthcare and education. These countries face many challenges in achieving sustainable
growth and development, but there are also opportunities for progress and improvement.

 Developed economy is a country that has a high level of economic development, advanced
technology, and high standards of living. Developed economies have achieved a high level
of economic and social development, but they also face ongoing challenges related to
issues such as inequality, environmental sustainability, and technological change.

 Balance of payments is a record of all transactions between one country and the rest of the
world over a certain period of time, typically a year. It includes transactions related to
trade in goods and services, purchase and sale of assets, and international investment and
loans. The balance of payments is used to assess the health and stability of a country's
economy.

 GDP stands for Gross Domestic Product, which is a measure of the total value of all goods
and services produced within a country's borders in a given period of time, typically a
year. GDP is used to compare the economic performance of different countries and is an
important measure of a country's economic output.

 GNP stands for Gross National Product, which is a measure of the total value of all goods
and services produced by a country's residents, regardless of their location, in a given
period of time, typically a year. GNP differs from GDP, which only measures the value of
goods and services produced within a country's borders regardless of who produced them.

 Employment refers to the number of people who are currently working or have a job,
typically expressed as a percentage of the total labour force.

 Unemployment refers to the number of people who are able and willing to work but do not
have a job.

 Inflation refers to the rate at which the general level of prices for goods and services is
rising. It is an important measure of a country's economic health and is used to make
decisions about economic policy and investment.
  Deflation refers to the rate at which the general level of prices for goods and services is
falling. It is the opposite of inflation and is an important measure of a country's economic
health, which is used to make decisions about economic policy and investment.

 savings refers to the portion of income that is not spent on current consumption and is
instead set aside for future use.

 Investment refers to the purchase of goods that are not consumed today but are used in the
future to create wealth.

What is Circular Flow of Income? The circular flow means the unending flow of
production of goods and services, income, and expenditure in an economy. It shows the
redistribution of income in a circular manner between the production unit and households.

The difference between GDP and GND

GDP is a measure of the total value of all goods and services produced within a country's borders
in a given period of time. GND is a measure of the total amount of income available to a country's
residents for spending or saving after taxes and other deductions have been taken out.
The formula for GDP is:
GDP = C + I + G + (X-M)
Where:
C = private consumption
I = gross investment
G = government spending
X = exports
M = imports
The formula for GND is:
GND = GDP + net foreign factor income (NFFI) - taxes + subsidies
Where:
NFFI = income earned by domestic factors of production from abroad, minus income earned by
foreign factors of production in the domestic economy
Taxes = all taxes paid by households and firms
Subsidies = all subsidies received by households and firms

TERMS
National output refers to the total value of all goods and services produced by a country's
economy in a given period of time.
Real output is the actual quantity of goods and services produced by an economy, adjusted for
inflation. It provides a more accurate measure of a country's economic performance over time, as
it takes into account changes in the price level that can affect the value of nominal output.
Potential output is the maximum amount of goods and services that an economy can produce
with its available resources. It is an important concept in macroeconomics, as it provides a
benchmark against which actual output can be compared.
Inflation is the rate at which prices of goods and services are rising. A recession is a period of
temporary economic decline, identified by a fall in Gross Domestic Product (GDP) in two
successive quarters. They both have a significant impact on the overall health of an economy.

The consequences of inflation can be significant and can vary depending on the rate of
inflation and other factors.
Some of the most common consequences of inflation include:
 Decreased purchasing power: As prices rise, the purchasing power of consumers
decreases, meaning they can buy fewer goods and services with the same amount of
money.
 Increased uncertainty: High levels of inflation can lead to increased uncertainty, as
consumers and businesses may be unsure about future prices and economic conditions.
  Reduced investment: Inflation can lead to reduced investment, as businesses may be
hesitant to invest in new projects or expand their operations due to uncertainty about future
economic conditions.
 Increased interest rates: In order to combat inflation, central banks may increase interest
rates, which can make it more expensive for consumers and businesses to borrow money.
 Decreased international competitiveness: High levels of inflation can reduce a country's
international competitiveness, as higher prices can make exports more expensive and less
attractive to foreign buyers.

The consequences of a recession can be significant and can vary depending on the severity and
length of the recession.

Some of the most common consequences of a recession include:

 Increased unemployment: During a recession, many businesses may lay off workers, leading
to increased unemployment.
 Reduced investment: Businesses may be hesitant to invest in new projects or expand their
operations during a recession, leading to reduced investment.
 Decreased consumer spending: Consumers may be hesitant to spend money during a
recession, leading to decreased consumer spending.
 Decreased tax revenue: During a recession, tax revenue may decrease, as businesses and
individuals may be earning less income.
 Increased government spending: Governments may increase spending during a recession in
order to stimulate the economy and create jobs.
 Increased government debt: Increased government spending during a recession can lead to
increased government debt.
Government’s role in reducing Inflation

 Price Controls

Price controls are price caps or floors mandated by the government and applied to specific goods.
Wage controls can be implemented in tandem with price controls to suppress wage push inflation

 Contractionary Monetary Policy

Contractionary monetary policy is now a more popular method of controlling inflation. The goal of
a contractionary policy is to reduce the money supply within an economy by increasing interest rates.
This helps slow economic growth by making credit more expensive, which reduces consumer and
business spending.

 Fiscal Policies
Fiscal Policies- increasing taxes and reducing government spending.
Government’s role in relieving recession
During a recession, the government may lower tax rates or increase spending to encourage demand
and spur economic activity. Conversely, to combat inflation, it may raise rates or cut spending to cool
down the economy.
There are four main types of unemployment in economics:
1. Frictional Unemployment: This occurs when people are in between jobs and are searching for
new employment opportunities. It is usually a short-term and temporary form of unemployment. To
reduce frictional unemployment, measures such as job search assistance, job fairs, and online job
portals can be implemented to help connect job seekers with available job opportunities.
2. Structural Unemployment: This occurs when there is a mismatch between the skills of workers
and the requirements of available jobs. This can result from changes in the economy such as
technological advancements, changes in consumer preferences, or shifts in the global market. To
reduce structural unemployment, measures such as education and training programs can be
implemented to help workers acquire the skills needed for available jobs. Government policies such
as tax incentives can also be used to encourage businesses to invest in new technologies and create
new jobs.
3. Cyclical Unemployment: This occurs due to fluctuations in the business cycle and economic
activity. During a recession, many businesses lay off workers, leading to higher levels of
unemployment. To reduce cyclical unemployment, measures such as monetary and fiscal policies can
be implemented to stimulate economic growth and create new job opportunities. For example, the
government can increase spending on infrastructure projects to create new jobs and stimulate demand
for goods and services.
4. Seasonal Unemployment: This occurs when jobs are only available for certain seasons, such as
agricultural work or holiday retail jobs. Workers in these industries may experience periods of
unemployment when their work is not in demand. To reduce seasonal unemployment, measures such
as job-sharing programs, where workers share available work hours, can be implemented to help
workers maintain employment during slow seasons.
5. Real wage unemployment happens when the wage rate is higher than the equilibrium wage rate,
leading to a surplus of labour supply and a shortage of labour demand, resulting in some workers
being unable to find employment. To reduce real wage unemployment, measures such as reducing or
eliminating minimum wage laws or implementing policies that encourage businesses to invest in new
technologies can be implemented to create new job opportunities. Here are some causes and measures
used to reduce each type of unemployment in economics.
What are the roles of the trade unions?
In a free market economy, trade unions represent workers and negotiate with employers on issues
such as wages, benefits, and working conditions. They can help to improve workers' bargaining power
and promote policies that benefit workers, but some argue that they can also have negative effects on
the economy, such as by increasing labour costs and reducing competitiveness.
Section 6: International Trade
TERMS
Balance of trade refers to the difference between a country's exports and imports of goods and
services.
The current account is a part of a country's balance of payments that measures the inflows and
outflows of goods, services, and transfer payments.
The capital account is a part of a country's balance of payments that measures the inflows and
outflows of capital, such as investments, loans, and transfers of financial assets.
The balance of payments is a record of all economic transactions made between residents of one
country and the rest of the world in a particular time period. It includes the current account, capital
account, and financial account.
Balance of payment disequilibrium occurs when a country's balance of payments is not in balance. It
can be either a surplus or a deficit, depending on whether the sum of the current account, capital
account, and financial account is positive or negative.
A tariff is a tax on imported goods and services, usually imposed by a government to protect domestic
industries and increase revenue.
CET stands for Common External Tariff. It is a tariff rate that is applied to goods imported from
countries outside of a particular trade bloc or customs union, with the goal of creating a level playing
field for all members of the bloc.
A quota is a quantitative restriction on the amount of a particular good that can be imported into a
country. It is usually imposed by a government to protect domestic industries from foreign
competition.
An exchange rate is the value of one currency in relation to another. It is the rate at which one
currency can be exchanged for another currency. Exchange rates are determined by market forces of
supply and demand in the foreign exchange market.
An exchange rate regime is the way in which a country manages its currency in relation to other
currencies. There are different types of exchange rate regimes, such as fixed exchange rate, floating
exchange rate, managed float, and pegged exchange rate. The choice of exchange rate regime depends
on a country's economic goals and circumstances.
WTO stands for World Trade Organization. It is an international organization that promotes free trade
and facilitates negotiations among its member countries. The WTO provides a forum for member
countries to negotiate trade agreements, resolve disputes related to international trade, and monitor
national trade policies.
Absolute Advantage: The ability of an actor to produce more of a good or service than a competitor.
Comparative Advantage: The ability of an actor to produce a good or service for a lower
opportunity cost than a competitor.
  There are several factors that influence trade on the import side in economics. Some of
these factors include:
1. Tariffs and trade barriers: Import tariffs and trade barriers can make imported goods more
expensive, which can discourage imports.
2. Exchange rates: The exchange rate of a country's currency can affect the price of imports. If a
country's currency is strong, imports may be cheaper, while a weak currency can make imports more
expensive.
3. Domestic demand: The level of domestic demand for goods and services can influence the amount
of imports a country receives.
4. Availability of domestic products: The availability of domestic products can also influence the
amount of imports a country receives. If domestic products are readily available, there may be less
demand for imports.
5. Government policies: Government policies, such as import quotas and regulations, can also
influence the amount of imports a country receives.

 There are several factors that influence trade on the export side in economics. Some of
these factors include:
1. Availability of resources: The availability of natural resources, labour, and capital can affect a
country's ability to produce goods and services for export.
2. Technological advancements: Technological advancements can increase productivity and
efficiency, which can make a country's exports more competitive in the global market.
3. Government policies: Government policies, such as subsidies and tax incentives, can encourage
businesses to export goods and services.
4. Exchange rates: The exchange rate of a country's currency can affect the price of exports. If a
country's currency is weak, exports may be cheaper, while a strong currency can make exports more
expensive.
5. Trade agreements: Trade agreements between countries can reduce trade barriers and make it easier
for businesses to export goods and services.
6. Consumer preferences: Consumer preferences in other countries can influence the demand for a
country's exports. If a country's exports are popular with consumers in other countries, there may be
more demand for those exports.

 Terms of trade is the ratio between a country's export prices and its import prices. It is a
measure of how much a country can buy with the goods it sells.
The formula for terms of trade is:
TOT = (Export Price Index / Import Price Index) x 100
Where TOT is the terms of trade, Export Price Index is an index of the prices of a country's exports,
and Import Price Index is an index of the prices of a country's imports. The formula calculates the
ratio of the price of a country's exports to the price of its imports, expressed as a percentage. A
favourable term of trade is a hundred or more and unfavourable is less than a hundred.

 There are several factors that influence the level of an exchange rate in economics. Some
of these factors include:
1. Interest rates: Interest rates can affect the demand for a currency, as higher interest rates can make a
currency more attractive to investors.
2. Inflation: Inflation can affect the value of a currency, as high inflation can reduce the purchasing
power of a currency.
3. Political stability: Political stability can affect the value of a currency, as political instability can
make a currency less attractive to investors.
4. Economic growth: Economic growth can affect the value of a currency, as countries with strong
economic growth may have a more valuable currency.
5. Trade balance: The balance of trade can affect the value of a currency, as countries with a trade
surplus (exporting more than they import) may have a more valuable currency.
6. Speculation: Speculation can affect the value of a currency, as investors may buy or sell a currency
based on their expectations of future economic or political events.
7. Central bank interventions: Central banks can intervene in the foreign exchange market to influence
the value of a currency, such as by buying or selling their own currency.

EXCHANGE RATE REGEMIES

 In a fixed exchange rate regime, a country's currency is pegged to another currency or
commodity, and the exchange rate is fixed. The central bank intervenes to maintain the
exchange rate. This can provide stability but limit monetary policy options and be vulnerable
to external shocks.

 In a floating/flexible exchange rate regime, a country's currency is allowed to fluctuate in

response to market forces, and the central bank does not intervene to maintain a fixed
exchange rate. This can provide flexibility for monetary policy but can create uncertainty for
international trade and investment.
 Graph showing floating/flexible exchange rate regimes.

 In a managed exchange rate regime, the central bank intervenes in the foreign exchange
market to influence the exchange rate, while still allowing the currency to fluctuate. This can
provide some flexibility for monetary policy but can also limit the central bank's ability to
respond to economic conditions.

 Appreciation is when a currency increases in value relative to another currency, while

depreciation is when a currency decreases in value relative to another currency. These changes
can affect international trade and investment.

 Revaluation is when a country increases the value of its currency, while devaluation is when a
country decreases the value of its currency. These changes can be used as policy tools to affect
exports, imports, and inflation.

Balance of Payment
The balance of payments summarises the economic transactions of an economy with the rest of the
world. These transactions include exports and imports of goods, services and financial assets, along
with transfer payments (like foreign aid).
If exports exceed imports, then the country has a trade surplus, and the trade balance is said to be
positive. If imports exceed exports, the country or area has a trade deficit, and its trade balance is said
to be negative.
Current, Capital and Financing Accounts
The current account is an important indicator of an economy's speed. It is defined as the sum of the
balance of trade (goods and services exports minus imports), net income from abroad, and net current
transfers.
In accounting, a capital account is a general ledger account that is used to record the owners'
contributed capital and retained earnings—the cumulative amount of a company's earnings since it
was formed, minus the cumulative dividends paid to the shareholders.
The financial account records transactions that involve financial assets and liabilities and that take
place between residents and non-residents.

Entries that would appear in the balance of payment accounts

current account + capital account + financial account

Factors giving rise to current account surpluses-

 Greater value of export over imports – this is when the cost of the export is more than the cost
of the import causing there to be more gain than expenditure.
 Reduction in spending by government and populace- reducing spending on imports cause
more money to be saved since they will less money utilized to pay for imported goods.

Factors giving rise to current account deficits
 Decreases in exports and increase in imports- this causes more money to be spent on the
payment for imports than that of the limited exports.
 Overspending by government and the populace on foreign products- spending more causes
more deficit.
 Increased costs of capital goods including technology- by not being able to purchase capital
goods the production of the poorer countries will be lesser thus causing lesser exports.
Consequences of current account deficit and surpluses
Impact on domestic industry- due to a surplus, the economy develops and so does income. This
leads people to stay purchasing goods overseas since they have the money to do so.
Social effects including retrenchment and employment- retrenchment is a situation where the
number of employees of a firm, for example, is reduced in order to decrease costs. During a surplus it
leads to an increase in employment to increase the nation’s productivity.
Reduced government spending and its impact on health, education and related services- when
there is a deficit it causes less money available for economic development (this includes health,
education and relative service).

Remedies for current account surpluses and deficits

Borrowing from local, regional and foreign sources including the IMF)- deficit will be cleared
with money borrowed from financial institutions.
Using funds from the reserves of foreign currency -reserving to foreign currency reserves to pay
import bills.
Privatization of state-owned exporting firms -Under government control, many state- owned
export- oriented firms may not be able to find adequate markets abroad for their products. By
privatizing these firms to foreign firms with an established distributional outlet.
Section 7: Caribbean Economies in a global Environment
The Caribbean economies are monocrop economies dependent on one export, usually
fromtheprimarysector:forexample,agricultureandtheextractiveindustriessuchaspetroleum,
natural gasandbauxite.

The smaller islands specialize in tourism, which is a tertiary sector activity. However,
becausetheeconomiesaredependentmainlyononeindustry,they arestillmonocropeconomies.

CHARACTERISTICS OF Caribbean

 Relatively small, with limited access to major international markets- most of the
Caribbean economies are small in terms of population.

 High involvement of multinational corporations- most Caribbean economies provide

incentives such as tax breaks and holidays for multinational corporations to invest and
operate with them.

 Significant exploitation of primary products for export- since Caribbean economies

don’t have much industrialization, they tend to export their primary products this causes
low earning in comparison to what could have been gained with processed goods.
EconomicproblemsfacingtheCaribbeaneconomies

 Low per capita GNP. Caribbean economies have low per capita GNP. This means that
theaverage income enjoyed by an individual for a given year is low. As a result, the
standard ofliving is low relative to the developed countries of the world. The standard of
living is the levelof economic well-being of an individual or a population. It takes into
account income levelsand thequalityandquantityofgoodsand servicesconsumed.

 Large amount of unskilled labor. A large percentage of the population is not trained or
skilledforthemodernindustrialsector.Thismeansthatthecountrywouldnotbeabletofullyutili
zetheir laborforceandtheirresources.

 Little access to technology and use of capital in the production process. Although
some firmsuse modern, highly efficient methods, many other firms have labour-intensive
productionprocesses. This means that the ratio of labour to other factors of production is
high. Less use ofcapitalintheproductionprocessmeanslowerproductivity.

 Large food import bill. Many of the Caribbean countries have current account deficits.
Theyspendmoreontheimportationofgoodsandservices thanthey
earnintheexportofgoodsandservices.

 Migration out of skilled professionals (the ‘brain drain’). Skilled labor and
professionals leavethe Caribbean region in search of better jobs and opportunities in
developed countries.
Whenpeoplesuchasnurses,doctors,teachersandtechniciansmigrate,theeconomywillhavefew
erof these workers available to provide for the needs of the population. In addition,
resourcesspenttotraintheseprofessionalsarelost.

 Largedebtburden.IntheCaribbeaneconomies,GNPislow,butthecountriesneedfundstofin
ance infrastructure and the provision of services such as health and education.
Exportearningsare low,butthecountries mustimportgoods andservices
tosatisfybasicneed.

DevelopmentstrategiesforCaribbeaneconomiesinaglobalizedenvironment

Investment in human capital. Provision of education and training will reduce the extent of
poverty inthese countries. It enables the poor to find jobs, earn an income and increase their
 quality of life. Someexamples of the government of Trinidad and Tobago’s investment in
human capital are investment inthe University of Trinidad and Tobago, provision of free tertiary
education, and investment in the Multi-SectorSkillTrainingProgramme (MUST)

Export-led growth – Exports are an injection into the circular flow of income. Sale of
export increasesthe earnings of domestic firms, create employment and result in the growth of
real GDP per capita(economic growth).Thisreducesthepercentageofthepoorinthecountry.

Provision of social services– Many governments have to provide social services to the poor in
order tohelp them escape the cycle of poverty. Such services include free education and health
care,
andsubsidizedtransportandwater.Theseassistanceswouldhelpraisethequalityoflifeforthepoorandit
wouldalleviate theirpoverty.

Developmentoftheentrepreneurialclass–
Thedevelopmentofaspiritofentrepreneurshipamongstthe people would encourage them to start
new businesses. This will create jobs and increase nationalincome.Thisisanotherdevelopment
strategyopen toCaribbeaneconomies.

Termsrelated totheCaribbeanEconomiesinaGlobalEnvironment

Debtburden- Thedebtburdenis thecostofthedebtintermsofthestrainitplaces

onthegovernmentandpeople ofa country.

Structuraladjustment-
TheyarepoliciesthatacountrymustimplementinordertoqualifyforanIMForWorldBankloan.

Economicintegration–Alsocalledregionalintegration,isanagreementamongnationstoreduce
oreliminatetradebarriers andagree onfiscalpolicies.

Protectionism- This refers to government policies that restrict international trade to

helpdomesticindustries.Someexampleofprotectionistspoliciesaretariffs,quotasandsubsidies.

Laissez-faire– It is an economic philosophy of free -market capitalism that opposes

governmentintervention.It restrictsgovernmentinterventionintheeconomy.

Common market– This term is an agreement between countries that allow products,
servicesand workers to cross borders freely. A common market aims to provide the free
movement ofcapital,goods, servicesandlaborwithinmemberstates.

Economic union– It is one of the different types of trading blocs. It refers to an

arrangementbetween countries that allow products, services, and workers to cross borders freely.
The unionis aimedateliminatinginternaltrade barriers between the membercountries.

Customsunion–Itisanagreementbetweentwoormoreneighboring countriestoremovetrade
barriers,reduceorabolishcustomsduties
Globalization–
Itistheprocessbywhichpeopleandgoodsmoveeasilyacrossborders.Itisalsotheworldwideinteracti
onoffirms.

Trade liberalization– It is the removal of tariff and non-tariff barriers in trade,

basicallyinternational.

Bi-lateralagreement–Itisanagreementbetweentwocountriestopromotetradeandcommerce.

Multi-lateralagreement–Itisanagreementbetweenmoreandtwocountriestopromotetrade
andcommerce.

International Monetary Fund (IMF)– This an organization of 190 countries, working to

foster,global monetary cooperation, secure financial stability, facilitate international trade,
promotehighemploymentandsustainableeconomicgrowth,andreducepovertyaroundtheworld.

Caribbean Community (CARICOM)– It is a group of developing Caribbean countries that

areworkingtogethertopromote economicandregionalintegration.

African, Caribbean and Pacific (ACP)– There are a group of independent states that
haveundertakentoreducepovertypromotedevelopmentandseekgreaterintegrationintotheglobalec
onomy.

Free Trade Area of America (FTAA)– It is a region in which a group of countries have
signed afreetradeagreementandmaintainlittleornobarrierstotradeinthe formof
tariffsorquotasbetweeneachother.

AssociationofCaribbeanStates(ACS)–
Itisanassociationofsatesthatisintendedtopromoteregionalismamongthememberstates.
Caribbean and Canadian Association (CARIBCAN)– It is an agreement that provides one-
wayduty- free access into the Canadian market for commodities that satisfy certain rules of
originrequirement.

Caribbean Single Market and Economy (CSME)– It is an arrangement among the

CARICOMMemberStatesforthecreationofasingleenlargedeconomicspacethroughtheremovalofres
trictions. This would in turn result in the free movement of goods, capital and
persons(CARICOMnationals).

WorldBank–
Theyareaprovideroffinancialandtechnicalassistancetoindividualcountriesaroundtheglobe.

Organization of Eastern Caribbean States- The Organization of Eastern Caribbean

States(OECS)isaneconomicunioncomprisingoftenislandslocatedintheEasternCaribbeanthatpro
motethe unificationofeconomicandtrade policiesbetweenits member-states.

EuropeanUnion(EU)-
TheEuropeanUnionisauniqueeconomicandpoliticalunionbetween27EUcountries.

Caribbean Basin Initiative– It is an organization intended to facilitate development of

stableCaribbean Basin economies by providing beneficiary countries with duty-free access to
the U.S.marketformostgoods.

Caribbean Development Bank (CDB)- The Caribbean Development Bank (CDB) is a

multilateralfinancial institution (FI) dedicated to assisting Caribbean nations and dependencies
achievesustainablelong-termeconomicgrowthanddevelopment.

Foreign Direct Investment- Foreign direct Investment is the long-term investment in a

countryby aninvestorfromabroad.
Closed economies- is one that has no trading activity with outside economies. A
closedeconomyiscompletelyself-sufficient,withnoimportsorexportsfrominternationaltrade.

Open economies- An open economy is one that interacts freely with other economies aroundthe
world. An open market is an economic system with little to no barriers to free-marketactivity.
An open market is characterized by the absence of tariffs, taxes, licensingrequirements,
subsidies, unionization, and any other regulations or practices that interfere withfree
marketactivity.

E
EFFECTS OF GLOBALISATION AND TRADE LIBERALIZATION ON CARIBBEAN
ECONOMIES
1. Foreign Direct investment (FDI)
2. Standard of living
3. Larger Market
4. Cultural imperialism (when cultures are affected or changed based on what was seen from
others through globalization)

EFFECTS OF GLOBALISATION AND TRADE LIBERALIZATION ON FIRMS

1. Increased Competition
2. New and improved technology
3. Greater access to international markets
4. E-commerce and raw materials

EFFECTS OF GLOBALISATION AND TRADE LIBERALIZATION ON CONSUMERS

1. Greater access to resources and services
2. Increased use of the internet
3. Lower price
4. Improved quality of good and services through competition

EFFECTS OF GLOBALISATION AND TRADE LIBERALIZATION ON CARICOM

GOVERNMENTS
1. Retrenchment (laying off of workers)
2. Vulnerable economies
3. Loss of sovereignty (can make certain decisions due to decision made in trade agreements)
4. Increased Social Problems
NOTE: All of the above effects will need elaboration in exams

E-businessandE-commerce

E-commerce is a business model that lets firms and individuals buy and sell things/items
overthe internet.

E-
businessisanykindofbusinessorcommercialtransactionthatincludessharinginformationacrosstheInt
ernet.E-businessisalsotheconductofbusinessprocesses ontheInternet.
The following images shows the advantages and disadvantages of e-business and
e-commerceontheeconomy.
IF THERE ARE ASPECTS YOU
DON’T UNDERSTAND
PLEASE FEEL FREE TO
MESSAGE