What are the three main ways in which linkages are established in an open economy?

Output Market, Financial Market, and Labour Market.

Fill in the blank: Foreign trade affects Indian aggregate demand by _____ it through imports and _____ it through exports.

Decreasing; increasing

True or False: The lack of stability in a national currency enhances its trustworthiness as an international medium of exchange.

False; lack of stability undermines trust.

What is the significance of the currency chosen for trade transactions between countries?

The chosen currency is crucial as it impacts the efficiency and trust in international trade, regardless of the individual currencies' acceptability.

Riddle: I am a market where you can buy financial assets from different lands. What am I?

Financial Market.

Fill in the blank: An open economy allows firms to choose production locations and workers to choose employment destinations, although _____ may restrict labour movement.

Immigration laws

In what way do imports and exports function in the context of aggregate demand?

Imports act as a leakage that decreases aggregate demand, while exports serve as an injection that increases it.

What are the two main accounts in the Balance of Payments?

The two main accounts in the Balance of Payments are the current account and the capital account.

The current account includes exports, imports, and various payments known as ___ and ___.

Transfer payments and receipts.

True or False: A surplus in the current account indicates that a nation borrows from other countries.

False. A surplus indicates that the nation lends to other countries.

What does a balanced Balance of Trade signify?

A balanced Balance of Trade signifies that a country's exports of goods equal its imports.

Fill in the blank: Net Invisibles represent the difference between a country's exports and imports of ___, ___, and ___.

Services, transfers, and income flows.

What types of transactions does the capital account record?

The capital account records all international transactions involving assets, including money, stocks, bonds, and government debt.

Riddle: I am the account where you find your trade in goods and services, but I don't include your assets. What am I?

The current account.

True or False: Capital account transactions include Foreign Direct Investments (FDIs) and external borrowings.

True.

What happens when a country's receipts and payments on the current account are equal?

When receipts and payments on the current account are equal, the current account is said to be balanced.

Riddle: I can be a surplus or a deficit, reflecting the flow of invisibles. What am I?

The balance of invisibles in the current account.

What does a current account deficit indicate about a country's financial position?

A current account deficit indicates that a country's spending exceeds its income, necessitating financing through borrowing or selling assets.

Fill in the blank: A balance of payments deficit occurs when ___ exceed ___ .

Expenditures exceed revenues

True or False: Autonomous items in the Balance of Payments are driven by economic motives such as profit maximization.

True

What are accommodating items in the Balance of Payments?

Accommodating items refer to transactions that occur as a response to other activities in the Balance of Payments, such as government financing.

Riddle: I balance the books without being seen, I correct mistakes in international finance, what am I?

Errors and omissions in the Balance of Payments.

What is the role of foreign exchange reserves in a country's economy?

Foreign exchange reserves are assets held to stabilize the currency and meet international obligations, thereby safeguarding economic stability.

Fill in the blank: A capital account surplus indicates a net inflow of ___ .

Capital