Every question from this NCERT chapter, with a detailed explanation.
In a fixed exchange rate system, if there is an excess supply of foreign currency, the Central Bank must:
Which one of the following is considered a primary advantage of a flexible exchange rate system?
Consider the following statements regarding the "Demand for Domestic Goods" vs "Domestic Demand for Goods": 1. In a closed economy, they are the same. 2. In an open economy, domestic demand for goods excludes imports. 3. In an open economy, the demand for domestic goods excludes exports. Which of the statements given above is/are correct?
Consider the following statements regarding the linkages in an open economy: 1. In an output market linkage, an economy can trade in goods and services with other countries, widening consumer choice. 2. In a financial market linkage, investors are restricted to choosing only between domestic assets. 3. Movement of goods has traditionally been seen as a substitute for the movement of labour between countries. Which of the statements given above is/are correct?
Consider the following statements regarding the Balance of Payments (BoP): 1. It records only the transactions involving the government sector with the rest of the world. 2. It typically records transactions for a specified time period, usually a year. 3. The Reserve Bank of India currently publishes data according to the new classification of three accounts: current, financial, and capital. Which of the statements given above is/are correct?
Which of the following items are included in the 'Current Account' of the Balance of Payments? 1. Export of goods 2. Import of services 3. Remittances and grants 4. External Commercial Borrowings
With reference to 'Transfer Payments' in the Balance of Payments, consider the following statements: 1. They require the recipient to provide goods or services in return. 2. They are receipts which the residents of a country get for free. 3. They consist exclusively of payments made for the import of capital goods. Which of the statements given above is/are correct?
Consider the following statements regarding the Balance of Trade (BOT): 1. It is the difference between the value of exports and imports of goods only. 2. Export of goods is entered as a debit item in BOT. 3. A Trade Deficit arises if a country imports more goods than it exports. Which of the statements given above is/are correct?
The term "Invisibles" in the context of the Current Account includes which of the following? 1. Services trade 2. Transfers 3. Flows of income 4. Trade in goods
In the context of the Capital Account, the purchase of foreign assets by an Indian resident is recorded as:
Consider the following statements regarding the Capital Account of the Balance of Payments: 1. It records only the export and import of goods and services. 2. External Commercial Borrowings (ECBs) are a component of the Capital Account. 3. A surplus in the capital account arises when capital inflows are greater than capital outflows. Which of the statements given above is/are correct?
According to Balance of Payments accounting, a surplus in the BoP is said to occur when which of the following conditions is satisfied?
Consider the following statements regarding "Depreciation" of domestic currency: 1. It implies that the price of foreign currency in terms of domestic currency has increased. 2. It occurs under a fixed exchange rate system. 3. It implies that one needs to pay fewer rupees to buy a unit of foreign currency. Which of the statements given above is/are correct?
With reference to "Speculation" in the foreign exchange market, consider the following statements: 1. If investors expect a foreign currency to appreciate, they will demand more of it in the present. 2. Expectations of currency appreciation have no impact on the actual exchange rate. 3. Speculation can destabilize the exchange rate by amplifying market forces. Which of the statements given above is/are correct?
In the short run, a rise in the interest rates at home, other things remaining equal, often leads to:
Consider the effect of income on the exchange rate. If domestic income increases: 1. Consumer spending on imported goods decreases significantly. 2. The demand curve for foreign exchange shifts to the right. 3. The domestic currency is likely to depreciate. Which of the statements given above is/are correct?
In a fixed exchange rate system, if the government sets an exchange rate higher than the market equilibrium rate, what is the likely outcome?
Which of the following best explains why the open economy multiplier is smaller than the closed economy multiplier?
Consider the following statements regarding "Speculative Attack" on a currency: 1. It is a phenomenon associated with a fixed exchange rate regime. 2. It involves aggressive buying of a currency to force the government to revalue. 3. It arises when people doubt the government's ability to maintain a fixed exchange rate. Which of the statements given above is/are correct?
Consider the following statements regarding "Net Invisibles" in the Balance of Payments: 1. It represents the difference between the export and import of tangible goods. 2. It includes factor income and non-factor income. 3. It is a component of the Current Account. Which of the statements given above is/are correct?
Match List I with List II and select the correct answer using the code given below: List I | List II A. Indian buys a UK Car Company | 1. Credit in Current Account B. Sale of share of Indian company to Chinese customer | 2. Credit in Capital Account C. Export of Tea to UK | 3. Debit in Capital Account D. Import of Machinery from Germany | 4. Debit in Current Account
With reference to the "Output Market" linkage in an open economy, consider the following statements: 1. It prevents producers from selling their output in foreign markets. 2. It allows consumers to choose between domestic and foreign goods. 3. It restricts the movement of labour between countries. Which of the statements given above is/are correct?
If a country has a Current Account Deficit, it means: 1. It is spending more than it receives from sales to the rest of the world. 2. It implies that the country is accumulating foreign exchange reserves. 3. It implies that the country is a net borrower from the rest of the world. Which of the statements given above is/are correct?
Consider the following statements regarding the "Interest Rate Differential": 1. It refers to the difference in inflation rates between two countries. 2. Investors are generally attracted to countries with higher interest rates. 3. A rise in domestic interest rates leads to an appreciation of the domestic currency. Which of the statements given above is/are correct?