NCERT Solutions for Class 12 Economics II Chapter 6 Open Economy Macroeconomics

Ans : Difference between balance of trade and current account balance


 

Ans : Official reserve refers to that the monetary authority (central bank) is financed the any deficit in the balance of payment. Official reserve transactions take place when a country withdraws from its stock of foreign exchange reserves to finance deficit in its overall balance of payment. A country With surplus in its overall BOP leads to rise in foreign exchanges reserves.
 Importance Official reserve transactions help to bring a balance In the country's overall balance of payment. So, it plays an important role in economy of any country. 

Ans : Nominal Exchange Rate It means the price of foreign currency in terms of domestic currency. Means, the number of units of domestic currency one must give up to get an unit of foreign currency. 
Real Exchange Rate It refers to the relative price of foreign goods interns of domestic goods.
To buy domestic goods of foreign goods, at a point of time nominal exchange rate is more relevant. 

Ans : \(\begin{aligned} \text { Given } &=P=\text { Price Level in India }=1.2 \\ P_{t} &=\text { Price Level in Japan }=3 \end{aligned}\)
\(\begin{array}{r}{e=\text { Nominal Exchanges Rate }=\frac{1}{1.25}=0.8} \\ {\text { Real Exchange Rate }=\frac{e P}{P}=\frac{08 \times 3}{1.2}=2}\end{array}\) 

Ans : The country from which we were importing and marking payment in gold would face an increase in prices and cost. There would be dis equilibrium. Normally the BOP of the country losing gold, and worsen that of the country with the favourable trade balance, until equilibrium In international trade is re-established at relative prices that keep Import and export In balance with no further net gold flow. Thus, fixed exchange rates were maintained by an automatic equilibrating mechanism.