Important Questions for CBSE Class 12 Economics Chapter 6 - Open Economy Macroeconomics

Important Questions with Answers for Class 12 CBSE Economics Chapter 6 – Open Economy Macroeconomics which is outlined by expert Economics teachers from the latest version of CBSE (NCERT) books.

CBSE Class 12 Macro Economics Chapter- 6 Important Questions

Question 1

A source of supply of foreign exchange is,

  • Donations given
  • Imports
  • Exports
  • Gifts

Answer: Exports

Question 2

A source of demand for foreign exchange is,

  • Brokerage of goods and services
  • Smuggle of goods and services
  • Export of goods and services
  • Import of goods and services

Answer: Import of goods and services

Question 3

What is the flexible exchange rate?

Answer: Flexible exchange rate is a type of rate which is ascertained by the demand and supply of distinct currencies in the foreign market.

Question 4

Provide 2 examples and explain why there is a rise in demand for foreign currency when its price decreases.

Answer: When the price of foreign currency decreases, imports gets cheaper in price. Hence, more demand for foreign exchange by the importers. Tourism is promoted abroad as it becomes cheaper. Hence, the demand for foreign currency increases.

Question 5

What determines the flow of foreign exchange into the nation?

Answer: Below mentioned are the factors that contribute to the flow of foreign exchange into the nation:

  • Trading of domestic commodities by the foreigners
  • FDI and portfolio investment in their home nation
  • Purchase of foreign exchange

Question 6

What is the foreign exchange and foreign exchange rate?

Answer: Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around the clock.

The foreign exchange rate is the rate at which one currency would be exchanged for another. It is also considered as the value of one nation’s currency in association with another currency.

Question 7

What is meant by the appreciation of currencies?

Answer: Appreciation of currencies refers to the increase in the exchange value of the currency when it is compared with other nation.

Question 8

Point out a merit of fixed exchange rate.

  • None
  • Ensures the supply of the fixed exchange rate
  • Ensures demand for the fixed exchange rate
  • Ensures stability for the fixed exchange rate

Answer: Ensures stability for the fixed exchange rate

Question 9

Point out a demerit of the fixed exchange rate.

  • Promotes the objectives of free markets
  • Ensures the supply of the fixed exchange rate
  • None
  • Contradicts the objectives of free markets

Answer: Contradicts the objectives of free markets

Question 10

Distinguish between autonomous and accommodating transaction of the balance of payment account.

Answer: Autonomous transactions takes place for a few economic contemplations such as profits and such financial transactions are independent of the state of balance of payment. Accommodating transactions are undertaken to cover the surplus or deficit in the balance of payments.

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