Worksheet: Open Economy Macroeconomics- 1 | Economics Class 12 - Commerce PDF Download

Fill in the Blanks

Q1: Foreign exchange refers to all currencies other than the domestic currency of a given ____________.

Q2: ____________ is the market where national currencies are traded for one another.

Q3: The equilibrium exchange rate is determined at a point where ____________ and ____________ are equal.

Q4: Managed floating is a combination of ____________ and ____________ exchange rates.

Q5: Balance of payments is a systematic record of all economic transactions between residents of a country and residents of ____________ countries.

Q6: Unilateral transfers are payments that residents of a country make without getting anything in return, for example, ____________.

Q7: The balance of trade represents the difference between the money value of ____________ and ____________.

Q8: Dirty floating occurs when countries manipulate the exchange rate without following the guidelines issued by ____________.

Q9: Economic factors causing disequilibrium in the balance of payments may include large scale ____________ expenditure leading to imports.

Q10: Changes in ____________, preferences, and fashions can affect a country's imports and exports.

Assertion and Reason Based

Q1: Assertion: The balance of payments provides a better picture of a country’s economic transactions with the rest of the world than the balance of trade.
Reason: Balance of payments includes both visible and invisible items.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.

Q2: Assertion: Managed floating is a fixed exchange rate system.
Reason: Countries manipulate exchange rates following guidelines issued by the IMF.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.

Q3: Assertion: Economic factors causing disequilibrium in the balance of payments include political instability.
Reason: Political instability can cause large capital outflows and hamper foreign capital inflows.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.

Q4: Assertion: Balance of payments always balances due to the presence of accommodating items.
Reason: Accommodating items refer to international economic transactions that occur due to economic motives.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.

Q5: Assertion: Flexible exchange rates are determined by market forces of supply and demand.
Reason: In a flexible exchange rate system, governments fix the exchange rates.
(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true, but Reason is false.
(d) Both Assertion and Reason are false.

Very Short Answer Type Questions

Q1: Explain the transfer function of the foreign exchange market.

Q2: Give an example of an invisible trade transaction.

Q3: What is the purpose of the current account in the balance of payments?

Q4: Define unilateral transfers with an example.

Q5: Name two factors that cause disequilibrium in the balance of payments.

Q6: Describe the fixed exchange rate system.

Q7: What is the role of accommodating items in the balance of payments?

Q8: Differentiate between balance of trade and balance of payments.

Q9: How does political instability affect the balance of payments?

Q10: Explain the concept of dirty floating.

Short Answer Type Questions

Q1: Explain the difference between Balance of Trade and Balance of Payments.

Q2: Describe the functions of the Foreign Exchange Market.

Q3: What is the significance of the Managed Floating exchange rate system?

Q4: Discuss the factors that may cause disequilibrium in the Balance of Payments due to economic factors.

Q5: Explain the concept of Autonomous and Accommodating items in the Balance of Payments.

Q6: What are Unilateral Transfers in the context of the Balance of Payments?

Q7: Differentiate between Fixed Exchange Rate and Flexible Exchange Rate.

Q8: Explain how Political factors can cause disequilibrium in the Balance of Payments.

Long Answer Type Questions

Q1: Discuss the various functions of the Foreign Exchange Market in detail.

Q2: Explain the concept of Managed Floating in the context of exchange rates, including its advantages and challenges.

Q3: Describe the components of the Balance of Payments, emphasizing the differences between the Current Account and the Capital Account.

Q4: Discuss the economic, political, and social factors that can cause disequilibrium in the Balance of Payments. Provide real-world examples for each factor.