CBSE Class 12th Economic exam is scheduled for 13th March 2020. In this article we have complied a list of important questions from Chapter 6 of Part B (Macroeconomics): Open Economy Macroeconomics. Questions given below are important questions and are expected to be asked in Class 12 Economics board exam 2019-20.
Ques 1 ‘‘A country with trade deficit cannot have current account surplus in its Balance of Payments.’’ Do you agree with the given statement ? Discuss with reason.
Solution: No, trade deficit occurs when value of goods/visible imported is more than the value of goods/ visible exported.
Trade deficit = Value of imports(Vm) < Value of exports (Vx)
Trade Surplus in this situation will arise when the deficit on trade account is less than the surplus on account of invisible.
Ques 2 In recent times the Indian Rupee (<) depreciated to an all time low
against the US dollar ($). Discuss its impact on India’s Imports.
Solution: Depreciation of Indian rupee means a fall in the purchasing power of Indian rupee in terms of US dollar. This makes foreign goods expensive in India and therefore results in a fall in the demand for imports of goods and services.
Ques 3 Define autonomous transactions in Balance of Payments of an economy.
Solution: Autonomous transactions are the transactions which are undertaken for some economic motives.
Ques 4 Define accommodating transactions in Balance of Payments of an economy.
Solution: Accommodating transactions are those transactions which are undertaken to cover the gap in the balance of payments.
Ques 5 Distinguish between depreciation of a currency and devaluation of a currency.
Depreciation of currency
Devaluation of currency
Fall in the external value of a currency due to the change in demand and supply of the currency in the foreign exchange market.
Fall in the external value of a currency as notified by the government of the country.
Ques 6 State any two factors responsible for inflow of foreign currency.
Solution: Two factors responsible for inflow of the foreign currency are:
- i) Investments from abroad.
- ii) Export of goods & services
Ques 7 “Indian Rupee (`) plunged to all time low of ` 74.48 against the US Dollar ($)”. – The Economic Times In the light of the above report, discuss the impact of the situation on Indian Imports.
Solution: Indian rupee plunged to all time low of 74.48 against US dollar. It is called depreciation in the value of Indian Rupees. It may lead to fall in imports as foreign goods will become costlier for the domestic consumers.
Ques 8 Discuss briefly the concept of managed floating system of foreign exchange rate determination.
Solution: Managed floating exchange rate system is the amalgamation of the flexible exchange rate system and the fixed exchange rate system. Under this system, central banks intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements.This system is also called ‘dirty floating’.
Ques 9 Name any two sources of demand for foreign exchange by households in an economy.
Solution: i) Demand of foreign exchange for imports of goods and services.
ii) Demand of foreign exchange for travel abroad
Ques 10 State the meaning of the following :
(i) Fixed Foreign Exchange Rate
(ii) Trade Surplus
Solution: i. Fixed exchange rate refers to the value of domestic currency in terms of foreign currency. Fixed exchange rate is notified by the government. It remains unchanged till the government revises it upwards or downwards. Trade surplus implies a situation when the value of exports of merchandise (visible) goods is more than the value of import of merchandise goods, in the same year.