Important Questions 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 Macroeconomics Chapter – 6 Important Questions

Question 1

Which among the following is a source of supply of foreign exchange?

a. Donations given

b. Imports

c. Exports

d. Gifts

Answer:

c. Exports

Question 2

Which among the following is a source of demand for foreign exchange?

a. Brokerage of goods and services

b. Smuggle of goods and services

c. Export of goods and services

d. Import of goods and services

Answer:

d. Import of goods and services

Question 3

What is a flexible exchange rate?

Answer:

A flexible exchange rate is a type of rate that is ascertained by the demand and supply of distinct currencies in the foreign market.

Question 4

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

Answer:

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

Question 5

What determines the flow of foreign exchange into a nation?

Answer:

Given  are the factors that contribute to the flow of foreign exchange into a nation.

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

Question 6

What are foreign exchange and foreign exchange rate?

Answer:

Foreign exchange is referred to as the conversion of a currency into another at a specific rate. The conversion rate for the currencies are fluctuating, as the rate of exchange is influenced by the factors of demand and supply.

The foreign exchange rate is referred to as the rate of exchange at which one currency will be exchanged for another. It shows the relative value of a currency in comparison with another currency.

Question 7

What is meant by the appreciation of currencies?

Answer:

The appreciation of currencies refers to the increase in the exchange value of the currency when it is compared with other nations.

Question 8

Which of the following is a  merit of the fixed exchange rate?

a. Ensures the supply of the fixed exchange rate

b. Ensures the demand for the fixed exchange rate

c. Ensures the stability for the fixed exchange rate

d. None

Answer:

c. Ensures the stability for the fixed exchange rate

Question 9

Which of the following is a demerit of the fixed exchange rate?

a. Promotes the objectives of free markets

b. Ensures the supply of the fixed exchange rate

c. Contradicts the objectives of free markets

d. None

Answer:

c. Contradicts the objectives of free markets

Question 10

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

Answer:

Autonomous transactions take place for a few economic contemplations such as profits, and such financial transactions are independent of the state of balance of payment. The accommodating transactions are undertaken to cover the surplus or deficit in the balance of payments.

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