Open Economy Macroeconomics
Bihar Board · Class 12 · Economics
Flashcards for Open Economy Macroeconomics — Bihar Board Class 12 Economics. Quick Q&A cards covering key concepts, definitions, and formulas.
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Get startedWhat is an Open Economy? List the three main ways economies interact internationally.
Answer
An open economy is one that interacts with other countries through various channels. The three main ways are: 1. Output Market - Trading goods and services with other countries 2. Financial Market - B…
Define Foreign Exchange Rate and provide an example.
Answer
Foreign Exchange Rate (Forex Rate) is the price of one currency in terms of another currency. It enables comparison of international costs and prices. Example: If we pay Rs 50 for $1, then the exchan…
What are the two main accounts in Balance of Payments (BoP)?
Answer
The two main accounts in Balance of Payments are: 1. Current Account - Records trade in goods and services, and transfer payments 2. Capital Account - Records all international transactions of assets …
List the components of Current Account in Balance of Payments.
Answer
Components of Current Account: 1. Trade in Goods (exports and imports of goods) 2. Trade in Services: - Factor income (earnings on land, labor, capital) - Non-factor income (shipping, banking, t…
Define Balance of Trade (BOT) and explain surplus and deficit conditions.
Answer
Balance of Trade (BOT) is the difference between the value of exports and imports of goods. • Surplus BOT: When exports > imports (country earns more from selling goods abroad) • Deficit BOT: When im…
What is the fundamental equation of Balance of Payments equilibrium?
Answer
Current Account + Capital Account ≡ 0 This means that any current account deficit must be financed by a capital account surplus (net capital inflow), or vice versa. When this balance is maintained, t…
Distinguish between Autonomous and Accommodating transactions in BoP.
Answer
• Autonomous Transactions ('above the line'): - Made for reasons other than bridging BoP gap - Independent of BoP state (e.g., profit motive) - Include trade, investments, loans for commercial p…
What components are included in the Capital Account?
Answer
Capital Account components: 1. Foreign Direct Investments (FDI) - Long-term investments in productive assets 2. Foreign Institutional Investments (FII) - Portfolio investments in stocks/bonds 3. Exter…
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