Learn CBSE Economics Index Terms for Class 12, Part 2, Chapter 6 Open Economy Macroeconomics
1. Output Market – The ‘Output Market’ is the market where the company sells its products to other entrepreneurs. In this market, companies have a large surplus of their product, and they will only sell or cut down their stocks. This can be equated with consumers having an excess supply of goods and being willing to buy from companies that offer stylish items at affordable prices.
The output market is the marketplace where all the providers of goods and services exchange their outputs (that is, goods and services) for money payments. The output markets approximate the total market and the supply and demand in that market.
The output market refers to the supply and demand for goods, services and other factors of production that are used to produce new or existing goods. A producer must have access to the right amount of inputs in order to make a profit. In order to gain this access, producers must pay other people (input suppliers) in exchange for their services.
2. Financial Market – Financial market is one of the most crucial economic developments. The financial market supports the economic growth and stability of any country. The financial market refers to the activities and institutions involved in providing financing for investment in businesses and asset-backed securities, as well as helping meet other financial needs. The most directly engaged participants in the financial markets are individuals, traders, brokers and investors.
Financial markets are defined as the institutions and mechanisms that are used for financial intermediation. The term also incorporates both institutional entities, such as financial services providers and commercial banks, which make up the system, and how they interact with each other.
Financial markets are where people buy and sell securities, such as stocks and bonds. They enable one to participate in the stock market, which has its own economy.
3. Labour Market – In economics, the labour market is the set of economic institutions that determine wages, prices and employment. It includes the institutions of hiring and firing, recruitment, job offers, and negotiation, payment of wages – including overtime pay – benefits such as health care, unemployment insurance and social security, and employment contracts.
The labour market refers to the market for labour. Labour is the main factor of production in national accounting, but it is also important in economic growth and the development of an economy. Labour market statistics are collected to inform national policy and international economic institutions regarding the availability of workers and their skills.
The labour market is the system by which people find jobs and employers come together to take advantage of each other’s abilities. It includes the jobs market and labour market. The labour market is the pool of skilled and unskilled workers (employees) who supply their labour to an organisation.
4. Open Economy – Open economy is a statement about the free playing of currencies and commodities for the market. The open economy is a macroeconomic term that refers to an economy where competition among countries and companies is open or unrestricted.
An open economy is a theoretical economic situation that allows for the free flow of goods, services, money and information. An open economy involves the freedom to trade and exchange goods freely with other countries without restrictions, tariffs and quotas.
In economics, an open economy is one that does not restrict trade and capital flows. Open economies are especially important for corporations with global operations. When a company faces a foreign exchange problem (for example, because the prices of domestic products do not cover their costs), certain policies may be taken to prevent the export of those products out of the country.
5. Current Account Deficit – In economics, the current account deficit is defined as the difference between a country’s net investment and its capital transfers. Thus, it is determined by two things: the stock of debt and investment (debt) and the flow of goods and services.
The current account deficit is the difference between the value of a country’s current expenditure on foreign goods and the value of its foreign assets. The current account deficit is the difference between a country’s imports and exports. The current account deficit occurs when a country spends more on imports than it earns from exports of goods, services and financial payments.
A current account deficit occurs when a country runs a trade deficit (one in which imports exceed exports) over a period of time. A country with a current account deficit generally has to borrow from another country to finance an increase in imports, and this borrowing is referred to as international borrowing, also called external debt.
6. Autonomous and Accommodating – Autonomous and accommodating are important concepts in economics. Autonomous means that a firm is able to set its own pricing or vary the quantity it delivers. Accommodating means that a company can adjust the quality of its product based on demand for that product.
Autonomous and accommodating are two different ways of describing a country’s economic policies or circumstances. Autonomous refers to a country with unrestricted control over its economy, whereas accommodating refers to one that permits foreign companies to operate freely.
Autonomous means independent and self-reliant, while accommodating is caring for the needs and feelings of others. Autonomous is a state of a system in which it has the capacity to do things it normally would not do. In other words, it’s the capacity to make decisions without outside input or control. Accommodating means accommodating something without changing or moving it.
7. Transactions – Transactions, in economics, are exchanges of goods and services between individuals and firms. Transactions in economics are the process by which goods and services are exchanged between two or more parties. The exchange of goods or services happens when someone pays money to acquire goods or services from someone else. In economics, a transaction refers to a single exchange of goods and services between buyers and sellers.
Transactions refer to the economic exchanges that take place in the marketplace. To understand transactions, it is important to consider what they are and how they help businesses and consumers make decisions. The terms “simple” or “unitary” transactions are used to define the smaller units of purchases from a business or retail transactions from a consumer. Complex transactions refer to large amounts of money changing hands over time as investment becomes more complex and people work together as a group for an agreed goal.
8. Purchasing Power Parity – In economics, Purchasing Power Parity (PPP) is the exchange rate between two currencies that would approximate the price difference between those two nations if they all had a common currency, so it is an attempt to estimate what the value of money would be in other nations. The PPP thus attempts to predict how much money prices would change if there were a single currency used to calculate prices in each country.
Purchasing Power Parity is the exchange rate between two countries, measured in terms of how much purchasing power consumers in each country have to spend on their imports. It makes sense that if a certain country is selling a good for, let’s say, $1,000 and its residents are willing to spend $1,300 on it, then its price parity with another country must be higher than $1,300.
Purchasing Power Parity (PPP) is a measurement of how much a dollar can buy with respect to various currencies. The PPP equation shows that exchange rates between two currencies are most stable when they move in the same direction, that is, when they both have the same buying power.
Purchasing Power Parity (PPP) is a money measure that determines the amount of money, which can be exchanged on the market between two different countries. PPP helps to determine an exchange rate between currencies, and it can also be used to evaluate the standard of living in a country and/or region.
9. Depreciation – In economics, depreciation is a loss incurred on an asset where the cost to replace the asset is less than its value at the time it is disposed of. As an example, a car that costs $20,000 can be sold for $6,000 at its end of life. Therefore, in accounting terms, you would write down the value of $10k on that asset as a loss due to depreciation. Depreciation can be thought of as a type of expense or cost associated with assets.
Depreciation is a write-off of the cost of an asset over its useful life. In other words, it represents the annual charge that a business, or any entity seeking to reduce its taxable income, has to make for getting money out of an asset and replacing it with something else.
Why do companies get so excited about depreciation? The answer lies in the fact that it is possible to calculate the exact amount of their investments in particular assets according to certain rules. This allows one to calculate the cost of acquiring a given asset, including interest payments on debt and tax expenses.
The item may be depreciated by the amount of lost value determined using the straight-line method. Certain rules apply to when and how much you can write off as a loss on their taxes.
10. Fixed Exchange Rate – The fixed exchange rate, also called a pegged exchange rate, is an exchange rate system in which the currency of one country is tied to another currency. The Dollar, for example, is tied to the Euro, and the Euro, for that matter, is tied to other currencies such as Yen and Pound Sterling. The fixed exchange rate helps to stabilise prices for both buyers and sellers and also helps to create an environment where the currency can see higher or lower prices without causing a great change in global economic output or consumer prices.
The term fixed exchange rate deals with the practice of keeping a fixed value between two different forex rates. This means that the value of the currency in one currency will be equivalent to the value in another currency. For example, if one looks at Japan and China, there is a difference in their local currencies, and the Japanese Yen would have been worth less against the Chinese Yuan than immediately prior to 2008. However, after Japan’s BOJ intervened in 2009 and 2010, stepping up its efforts to make sure it did not lose its peg with the U.S. Dollar, both countries were able to stick to it for several years.
A fixed exchange rate regime is one in which the value of a currency against other currencies remains constant with respect to changes in exchange rates. It is a policy pursued by governments when there is excessive volatility in foreign exchange rates, and it is believed that it will stabilise the foreign exchange market.
An exchange rate (also known as a foreign-exchange rate, forex rate or FX rate) between two currencies is the price at which one currency will be exchanged for another. It is prohibited by law in most countries to trade on an exchange without permission. In some jurisdictions, it is permitted to use contracts based on the spot exchange rate, but these contracts are technically not foreign exchange. The law of one country regulates the exchange rates that can be used in transactions with that country’s residents. When people lend money to others, there is no formal agreement that specifies the amount and repayment terms; instead, each party makes their own decision as to how much interest they want to charge as well as how much they can lose if they make a foolish decision regarding the exchange rate.
11. Managed Floating – Managed floating means that most of the countries in the world let their currency’s value float freely, and they can adjust the exchange rate of their currency depending on external factors. The European Union, Asia and America usually have this type of economic system; China has recently begun adopting it.
Managed floating means the exchange rate is allowed to fluctuate within a band, with the exchange rate being allowed to change in response to economic conditions or the move of other currencies.
Managed floating is an economic policy which allows governments to manage the level of interest rates. Managed floating is a system of foreign exchange regulation in which adjustments to the value of a currency take place at irregular intervals, frequently prior to the next scheduled adjustment.
12. Marginal Propensity to Import – Marginal Propensity to Import (MPM) is the proportion of domestic production that a country might import for given conditions. It is often expressed as the ratio between imports and exports.
Marginal Propensity to Import is the ratio of the change in the value of a country’s imports to the change in its overall product. It is important because it explains how much a country reaps from export. If a country’s Marginal Propensity to Import is larger than 1, then it will lose out domestically by trying to export more.
Marginal Propensity to Import is defined as the ratio of the marginal costs of importing goods over and above imported goods used domestically. Marginal Propensity to Import reflects how much an income recipient would be willing to spend on imported goods relative to their domestic ones. A number between zero and one means the products are used entirely domestically.
Marginal Propensity to Import is the percentage of a change in economic activity that is due to an increase or a decrease in trade. For example, if the export price of a country is $100 and its expenditure is 60%, an increase in this expenditure would result in an increase in demand from other countries, which would increase their resulting imports from us and steady the trade balance between these two countries; this process could be repeated ad infinitum until no more exports were performed, thus making it impossible for countries to export to each other.
13. Open Economy Multiplier – Not only is the open economy multiplier a financial concept, but it is also a real-life phenomenon. Loans, investments and other financial flows can result in an increase in real output and employment. This can even lead to higher investment, higher GDP, and ultimately more inflation – which is good for consumers.
The open economy multiplier is the interaction between international capital flows and domestic business activities. It’s a simple formula but very important for understanding how the global economy functions and affects everyday life. The concept of an open economy multiplier describes how an increase in foreign investment can create economic benefits for consumers and businesses in a country by influencing commodity prices, interest rates and inflation levels via three key components: demand, supply and foreign exchange reserves.
The open economy multiplier is a measure of the change in a country’s GDP that results from an increase in the money supply. This is calculated by multiplying the value of goods produced by GDP divided by the rate of growth in the money supply.
In contrast to the old regime, price determination was taken out of the hands of money markets and monopolised by monopoly cartels. The consequence is that the so-called negative supply shock in one country can have a very positive effect on another country. The classic example of such a multiplier effect is the case where a currency depreciation takes place all over the world: the higher interest rates raise demand for domestic investments and consumption, which in turn raises employment and stimulates growth, which again lowers interest rates, which stimulate yet more consumption and investment until the economy reaches full employment, where once again each factor’s optimal level is reached as output increases production with declining costs.
14. Balance of Payments – Balance of Payments in economics is a concept that deals with the movement of funds between countries. It’s measured on what a country imports and exports over a certain period, providing information on how different countries interact with each other.
Balance of Payments (BOP) is a term typically used in economics to describe a country’s current account (its trade balance with the rest of the world). An important concept for economists and investors, a country’s BOP represents all foreign direct investment flows and other transactions that can affect a nation’s net worth and liquidity position.
Balance of Payments is the statistical account of movements in a country’s international payments. It records the nation’s receipts and expenditures on goods, services, assets, liabilities and capital inflows/outflows at each point of time. Balance of Payments is classified into four broad categories: (i) balance on goods, (ii) balance on non-factor services, (iii) balance on factor services, and finally, (iv) net errors and omissions.
The Balance of Payments statement is a report on a country’s foreign trade and its current account with respect to the rest of the world.
15. Official Reserve Transaction – Official Reserve Transaction is an economic term defined by The Handbook of Price Theory for the Third: Forecast and Policy Making. It describes a contract to buy or sell securities that are not subject to any other pending exchange transaction.
Official Reserve Transaction (ORT) is the official reserve currency of a national central bank, which allows member countries to hold their reserves in the same currency as their primary reserve currencies.
Official Reserve Transactions are those that are initiated by a central bank. The official reserve transaction is one of the main ways economists measure how much money is actually used in the economy.
16. Nominal and Real Exchange Rate – Nominal and real exchange rate measures of exchange rates. The nominal exchange rate is the weighted average value at which a currency can be exchanged for another without any holds taken into account. This value is often expressed in terms of the most-used international unit of currency, such as U.S. Dollars or Euros.
The nominal and real exchange rate measures the value of the currency in terms of another currency or a basket of other currencies. The nominal exchange rate is the price or value of a country’s currency expressed in terms of other currencies. The real exchange rate is the nominal rate divided by the appropriate price level. For example, if the price level were $1 for a Pound and $2 for a Dollar, then the exchange rate between those two currencies would be 4:1.”
The nominal exchange rate is the exchange rate expressed in terms of nominal units. It is defined as the nominal price of a foreign currency unit in terms of domestic currency units for each foreign currency unit. The real exchange rate is the inverse of this. For example, if a Dollar was exchanged for 5 Japanese Yen at a particular time, then it had a real exchange rate of 5 /1 (so one Yen would be worth $5).
17. Flexible Exchange Rate – Flexible exchange rate is a monetary policy tool that allows the Swiss National Bank (SNB) to adjust the base value of its currency.
The flexible exchange rate is an economic policy that allows a country’s central bank to adjust its currency’s value relative to other currencies in markets where the home currency is traded. When a flexible exchange rate is used, the country will be able to adapt future policies by changing its exchange rates.
A flexible exchange rate regime is one in which exchange rates fluctuate depending on market conditions. In flexible exchange rate regimes, the currency of a country is not fixed, but through open market operations, an adjustment is made to revalue or depreciate the national currency against foreign currencies.
A flexible exchange rate is a monetary policy that adds to the money supply and thereby reduces real interest rates. It also increases aggregate demand, which in turn strengthens economic growth.
18. Interest Rate Differential – The Interest Rate Differential (IRD) is the prescribed difference between the interest rates charged to lenders and those paid by borrowers. The IRD is an economic term used to describe the difference between interest on debt and interest on deposits which arises because of time preference, risk aversion or liquidity preference.
The Interest Rate Differential is a measure of the difference between the interest rates on loans with different durations. Interest Rate Differential is the difference between the maximum interest rate paid on a loan and the minimum interest rate paid on a loan. It usually applies to loans which are fixed at both ends. This forms a gap between two sections of a curve that indicates how much more expensive or cheaper it is to borrow funds at one end than at another, known as the spread. For example, if the underlying interest rate on a European unsecured bond is 5% per annum, but one wants to borrow money with less than 2 years until maturity, one is paying an interest rate differential of (5 – 2) = 3%.
Interest Rate Differential is the difference between the interest rate in a local market and the interest rate placed on a Eurodollar deposit, for example, at a currency bank. In a local very weak market, the differential may be very large, which in effect, means that countries outside of the Eurodollar are pocketing all the profits from a given transaction. In a national liberalised capital market where there is no differential, it works as follows; A buyer (read: investment manager) receives income from an investment while this same asset is sold to another investor who cannot profit at all since his purchase price is below current market value. This extreme scenario can happen if, for example, an investment manager buys an expensive brand-new building or property for 100% of its $100,000/year rental value expressed in currency because one has been speculating on devaluation in Euros.
19. Devaluation – Devaluation is a direct reduction in the value of one currency relative to another. It requires that the currency charged by the central bank (or other financial institutions) for its services be reduced so that foreign buyers will buy more of it. Devaluation is usually done in order to defend the domestic currency’s exchange rate against the rising value of another country’s currency or against other countries’.
Devaluation is a decrease in the value of a currency, which in turn reflects that, like any other commodity or asset, it is easy to trade for other currencies. This can be achieved by simply adding cost to the unit of currency. Devaluation results from an increase in prices, often induced by supply and demand changes. For example, if oil companies that produce commodities had too much oil and were dumping it onto the market at prices far below what it would cost them to produce it (for example, if they were dumping oil at $20/barrel instead of $40 per barrel), then consumers would pay less for petrol at the pump due to lower supply. This could also happen if people suddenly stopped wanting expensive imports like clothes and food items because they are cheaper elsewhere.
Devaluation is a term that describes when a currency’s value decreases relative to some other currency. It can be caused by economic factors such as an oil shock, or by political factors such as nations notching down their exchange rate policy to gain a trade advantage. It can also be caused by changes in domestic or foreign interest rates, which affects the ‘real’ value of a currency. Finally, there are many intermediate factors that can affect the devaluation process, including exchange rate depreciation or appreciation.
The devaluation of a currency refers to the lowering in value of a country’s currency against other currencies, such as the U.S. Dollar or the Euro. Critics argue that decreasing the value of one’s currency makes it less attractive to investors who would otherwise pump money into exports with their home currency. Theoretically, this should boost growth and reduce inflation.
20. Demand for Domestic Goods – Demand for domestic goods is the aggregate demand of domestic customers for goods and services produced domestically by companies within a country. The domestic demand for goods and services is measured in terms of their value earned by suppliers. Domestic demand refers to the use of revenue earned from selling goods and services within a country.
Demand for domestic goods is the aggregate of all demands for goods produced in a country. Demand for domestic goods increases when the price of products rises and will decrease when their prices fall. The demand curve shows what quantity of a product people will buy at various prices; it is downward sloping.
In economics, demand for domestic goods is the quantity of domestically produced goods demanded at all prices. In a free market, producers would offer their products in response to consumer demand; thus, the demand schedule would be identical to the supply curve.
In economics, the demand for a good, also known as its market demand or effective demand, is the quantity of that good that people are willing and able to purchase at a particular price.
21. Net Exports – Net exports mean that a country’s exports are greater than its imports. Countries that run a trade deficit because of net exports are called net importers. Net exports are the difference between goods and services that a country sells abroad and goods and services that it buys from foreign countries. Comparing net exports positive to imports or net invoicing shows an increase in the value of a country’s production that can be attributed to trade with other nations.
Net exports (NX) are the difference between a country’s export of products and its import of foreign goods and services. This is a measure of how much of a country’s income comes from producing goods and services as opposed to acquiring goods and services from other countries. The terms “net exports” and “balance of trade” are often used interchangeably, although there is some debate over what exactly the word means in current usage.
Net exports add to a country’s GDP when they are greater than the value of its imports and subtract from it when they are less than the value of its imports. The difference between the two becomes net exports.
22. Revaluation – The meaning of revaluation in economics is when the value of a nation’s currency is changed. The revaluation of gold in the United States was a one-time adjustment of its value in the U.S. dollar relative to foreign currencies effected by the Gold Reserve Act of 1934, which effectively devalued the dollar. In 1933, President Franklin Roosevelt intervened in a dispute between Mexico and El Salvador over the deployment of troops on what was then called Tragic Ground (now known as El Cepillo) along the Mexico–Central American Isthmus. This intervention effectively created an international boundary midway through the Caribbean Sea.
Revaluation is the process of revaluing a currency; in other words, the total value of all circulating currency is compared to its true market price. By this method, governments can reduce or cancel unproductive debts held by individuals or corporations.
Revaluation is a process in which the exchange value of an asset changes over time. In other words, banks and financial institutions will reduce the face value of the currency it holds compared to its value and the expected future earnings.
23. Appreciation of Domestic Currency – Appreciation of domestic currency is a process by which countries that have a high rate of interest on their reserves and have a small economy have to pay more for their money over time. Appreciation of domestic currency can be defined as the increase of a domestic currency due to inflation.
Appreciation of domestic currency is a process whereby the demand for money from domestic investors increases due to an increase in their incomes or asset prices. The price of domestic currency will then increase. The value of the currency in question rises when export prices rise and fall when export prices fall.
24. Floating Exchange Rates – Floating exchange rates are a system in which the currency exchange rate is determined as part of a free market but is, nevertheless, fixed and unchanging. In economics, floating exchange rates attempt to establish a currency’s value relative to another currency or in relation to gold. A floating exchange rate has no fixed value at any particular point in time; rather, it moves up and down according to market forces like supply and demand, as well as other factors like inflation and growth.
Floating exchange rates are one of the most important tools governments have at their disposal when managing their economies. The floating exchange rate system is used in several ways to achieve policy goals, such as maintaining a stable currency, preventing capital flooding into some countries, facilitating trade with other countries, etc.
Floating exchange rates are exchanges between two different currencies that are set by a central bank. The value of each currency is determined by supply and demand, and the amount of currency available in circulation is also often limited by trading restrictions.
25. Foreign Exchange Market – The foreign exchange market is the money trading market in which parties buy and sell currencies from each other, usually outside of their home country. It is also one of the major financial markets. The foreign exchange market is one of the largest and most liquid, with $4 trillion traded daily in 2013; it has a high degree of liquidity.
The Foreign Exchange Market (Forex) is a global exchange market where traders provide each other with current foreign exchange rates for all currencies at any time. Forex is often called the “central bank” of the world’s economy, as it has a huge impact on many other parts of the financial markets.
The foreign exchange market is a global marketplace where financial institutions, companies, and individuals can carry out transactions in different currency units. The foreign exchange market creates opportunities for traders to hedge against their risk of currency movements, as well as to speculate on the short and long-term value of those currencies.
The foreign exchange market is the biggest financial marketplace in the world, consisting of traders, brokers and banks that trade currencies against other currencies. An active foreign exchange market provides a way for individuals, institutions and governments to hedge against currency volatility.
26. Currency Board – In economics, a currency board is a monetary policy used to maintain fixed exchange rates. Under this policy, any foreign currency that can be exchanged for domestic currency will be exchanged at a rate of one-to-one with the domestic currency.
A currency board is a policy designed to prevent monetary crises. A currency board is a nationalised or quasi-nationalised entity that issues the nation’s legal tender currency and stores overnight deposits at the central bank in exchange for those deposits. The central bank then purchases specified amounts of foreign currencies using its reserves, with those foreign currency holdings becoming the reserve base for domestic transactions. The currency board thus maintains its own reserves and does not use depositors’ money for current operations.
A currency board is a framework within which the supply of domestic currency to the public can be controlled by the central bank. The purpose of a currency board is to prevent changes in the exchange rate from affecting inflation.
A currency board is a policy in which a country’s central bank is required to maintain its reserves at a fixed level with the country’s currency by buying and selling currency on international exchange markets.
27. Net Invisibles – Net invisibles are goods and services that are not reflected in the market price, especially because they involve invisible transactions. In the general case, one has to calculate what is included in the total product prices in order to know the amount of net invisible when there is a need to produce them by adding them to final product prices.
Net invisibles, or net exports as they are sometimes known, is the sum of all exports less imports. Net invisibles represent the value of all goods, services and income flowing out of a country that is not included in our totals.
Net invisibles are people who are not counted in the national accounts of a country. They include illegal workers, illegal immigrants and foreign students who live and work in a country on an irregular basis but pay taxes there.
In economics, the invisible hand (also called the market mechanism) refers to self-regulation by individuals and economic forces in an environment where there are no social or political institutions that intervene to enforce rules and sanctions. The concept was first enunciated in a classical work of 1776 by Adam Smith, who wrote: “The exchange of each labouring man being peculiarly close upon this system of natural liberty, it is not very difficult to conceive that the quantity of industry which in any country carrieth on even their indolent and slothful part of the society must necessarily be very much influenced by the frequent or easy opportunity they have of exercising it themselves.”
28. Balance of Trade – Balance of trade is the difference between a country’s exports and imports. Balance of trade measures the value of a country’s exports relative to its imports. A country with a positive balance of trade is thought to have a surplus in its current account, while a deficit indicates that it has an import.
A balance of trade is a comparative measurement of how much countries import and export. It measures the difference between the value of goods imported by a country and the value of goods exported.
In other words, the balance of trade is the difference between total exports and imports in a country. This occurs by comparing the value of imports with the value of exports. If a country’s exports are more than its imports, it has a positive balance of trade; if it imports more than it exports, it has a negative balance of trade.
29. Exchange Rate – The exchange rate is the rate at which one currency can be exchanged for another. It serves as an indicator of the current cost of converting one currency into another and also a benchmark in determining relative costs between countries.
In economics, an exchange rate is the rate at which one currency will be exchanged for another. Often it is quoted in terms of two currencies: one being the base currency (the home currency) and the second being the quoted currency (the foreign currency). The base and quote currencies are often different, as are their respective central banks.
An exchange rate, partial equilibrium exchange-rate system or even relative exchange-rate system is the most common method of pegging a currency’s value against another currency. Under this type of system, the value of one currency relative to another is based on multiple factors such as interest rates, inflation rates or other economic conditions or policy goals.
The exchange rate (also known as the real exchange rate) is a measurement of the price of one currency in terms of another currency. The value of a currency in terms of something else, generally another currency or the same currency measured against its own worth in terms of another form, is called its relative value.
30. International Monetary System – The International Monetary System (IMS) is the system of international exchange rates established by the International Monetary Fund (IMF) and the World Bank. The IMS framework comprises a set of rules for entities (most important central banks) to determine how to make their national currencies imitate each other in order to achieve stable prices and economic growth.
The International Monetary System is the global monetary system between countries. This financial system consists of a number of different international institutions and organisations. The International Monetary System is a group into which countries are grouped as they post their national currencies. This system divides the world into two main groups, the developed and developing areas, which in turn receive appropriate exchange rates based on their relative economic strength.
This is the monetary system that is generally used by industrialised countries. It includes some of the features of a single-tier system and a two-tier system.
31. Leakage – Leakage in economics is a type of market failure that occurs when consumers make good but marginal or insignificant use of their money’s resources. Leakage refers to a situation in which goods or services are sold at prices below the equilibrium level.
Leakage is the process by which resources or capital are wasted or used inefficiently. It is generally caused by a loss of control over the use of resources within an organisation. This loss can lead to inefficiency and overreach, wasting scarce resources and resulting in suboptimal performance from employees, suppliers and customers.
Leakages occur when a flow of money or an economic activity that is supposed to be within the jurisdiction of one government or market seeps into the jurisdiction of another. This leakage of funds ultimately leads to an increase in taxes and debt default, which can lead to financial crises.
32. Injection – In economics, injection is usually just a short name for the process of spending money on a good or service to encourage demand. In economics, injection refers to an increase in the quantity of production and flow of goods. When producers or other economic agents receive money from a purchaser having the power to pay for their output, this is called an injection.
An injection is a transaction that makes one good or service available to a market. The term may also refer to the consumption of two or more goods or services in the process of their production.
The injection is the process of injecting money into the market with the intention of either creating inflation and raising interest rates or lowering interest rates. Inflation occurs when money floods into the economy, pushing prices up and pushing investors to seek out currency paying higher returns. Deflation occurs when money floods out of the market, causing prices to fall and leading investors to seek out currency that pays lower returns.
33. Money – Money is a tangible item that can be used as a medium of exchange in markets to buy and sell goods or services. The money we use isn’t physical, but it’s still an important aspect of economics. Money isn’t just a medium of exchange; it also performs the role of a store of value, a unit of account and a standard for measuring the value of goods and services.
Money is a medium of exchange, that is, a readily accepted store of value that can be exchanged for other goods or services, and it is based on the concept of buying on an entirely different level. Money is a financial statement that shows how much money someone has to pay their bills, including all of their debts and expenses. A person must have money to buy everything they need, but it doesn’t make them richer if they don’t have anything else because they still have to live.
Money is the most common unit of exchange and a necessary medium of exchange in any society. It has value, both because it is a store of value and also for its ability to substitute for other goods, enabling people to do business with one another. Money may be used as a measure of value, but it can also be used as a medium of exchange or a unit of account – when taken together, these two aspects are known as moneyness.
We hope that the offered Economics Index Terms for Class 12 with respect to Part II, Chapter 6: Open Economy Macroeconomics, will help you.
Related Links:
- Class 12 Economics Index Terms Part I Chapter1: Introduction
- Class 12 Economics Index Terms Part I Chapter 2: Theory of Consumer Behaviour
- Class 12 Economics Index Terms Part I Chapter 3: Production and Costs
- Class 12 Economics Index Terms Part I Chapter 4: The Theory of the Firm Under Perfect Competition
- Class 12 Economics Index Terms Part I Chapter 5: Market Equilibrium
- Class 12 Economics Index Terms Part II Chapter 1: Introduction
- Class 12 Economics Index Terms Part II Chapter 2: National Income Accounting
- Class 12 Economics Index Terms Part II Chapter 3: Money and Banking
- Class 12 Economics Index Terms Part II Chapter 4: Determination of Income and Employment
- Class 12 Economics Index Terms Part II Chapter 5: Government Budget and the Economy
- Class 12 Economics Index Terms Part II Chapter 6: Open Economy Macroeconomics
