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International Trade, The Balance of Payments and Exchange Rates - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with International Trade, the Balance of Payments and Exchange Rates and are relevant to the following specifications:

  • AQA: Module 2, Module 6, Section 15.4
  • Edexcel: Unit 3, Unit 6
  • OCR: Unit 2883, 5.3.4

Aim:

The relationship between these three areas can cause problems in understanding for students, partly due to the vast nature of the concepts involved. The aim of these lessons, therefore, is to lead students through a series of questions requiring relatively short answers that will help build understanding of the key relationships. The student will need to have been given some background on the basics of the three concepts and the Presentation should be used for this purpose.

One common misconception amongst students is that the government somehow controls or is at the heart of all decisions relating to international trade. Many believe it is the government that 'buys' and 'sells' goods and services from and to abroad. In addition, there is confusion about what constitutes an import and an export - especially with regard to services. The Presentation aims to try to focus on the direction in which currencies flow into and out of a country as the basis for clarifying this particular misconception.

The 15 questions can all be followed successively. The intention is that they build understanding and then develop that understanding by encouraging students to think further about the issues raised. The final question provides an opportunity to put together a number of the points covered in a more extended piece of writing that focuses on higher order skills.

The questions have assumed some element of simplification, of course, but the intention is that students can start to appreciate the complexities involved in trade and that the models we use are subject to some constraints. In particular, the introduction of the impact of price elasticity of demand in considering the link between changes in the exchange rate and the effect on the balance of payments may be more relevant to those pursuing A2 level, but some AS students may well gain some benefit in terms of relating a concept used earlier in the course to a 'new' topic. If nothing else, it will help them to refresh their understanding and use of this important concept.

Question 15 is provided as a suggested homework question.

Learning Objectives:

At the end of the lessons, students should understand the following:

  • The benefits of international trade
  • The distinction between imports and exports and the flow of currencies
  • The key elements of the balance of payments
  • The distinction between volumes and value in trade
  • The link between exchange rates, trade and the balance of payments
  • The impact of the price elasticity of demand on trade movements
  • The distinction between an appreciation and depreciation in the value of a currency
  • The effect of exchange rate movements on competitiveness and world trade

Resources:

Lesson Structure:

Lesson 1

  1. Begin the lesson by looking at the stimulus objects - the items involved in trade. Ask students to think about where these products/services might come from - use the map to help pinpoint countries (many students have a limited knowledge of world geography!). This can be supplemented by getting students to identify the source of the clothes they are wearing, their mobile phones, calculators, desks, shoes, jewellery, etc. The intention is to raise awareness about the degree of dependency we have on trade. (15 minutes)
  2. Discuss the process by which trade occurs - who determines what goods and services are traded? How are trading decisions made and by whom? What practicalities are involved in carrying out trade? (10 minutes)
  3. Introduce the Presentation. Go through the slides explaining key points, especially with regard to comparative advantage and the elements of the balance of payments. The slides can be interspersed with practical examples from numerous textbooks and activity sources to highlight the points raised. (30 minutes)
  4. Review the main learning points from the lesson. (5 minutes)

Lesson 2

  1. Review the key points from the last lesson and ensure that students understand the key links/relationships between the three main topics (trade, balance of payments and exchange rates) through a short question and answer session. (10 minutes)
  2. Introduce the Activity. Explain the purpose and the main outcomes of the Activity. Point out that the answers needed are designed to help develop and assess understanding of the key relationships and that the answers do not need to be lengthy. Monitor student progress and provide help and assistance as necessary. (40 minutes)
  3. Set question 15 as homework - educators may wish to attach marks to the question; a suggestion of an 8/12 split is appropriate. Review the main points of the lesson. (10 minutes)