Basic Concepts of Open Economy

An Indian company located in India invests in a company located abroad. This transaction is entered in India’s balance of payments account on: (choose the correct alternative)

In output market the consumer can choose between domestic goods and foreign goods.

What measures can a country take to protect its currency from excessive depreciation or appreciation?

Explain the relationship between exchange rates and inflation. How does a high inflation rate in a country affect its currency value?

How do tariffs and non-tariff barriers impact international trade? Provide examples.

Explain the concept of capital account convertibility. What are the implications of full capital account convertibility for a developing country like India?

Why is the open economy autonomous expenditure multiplier smaller than the closed economy one?

Are the concepts of demand for domestic goods and domestic demand for goods the same?

How is the exchange rate determined under a flexible exchange rate regime?

Distinguish between the nominal exchange rate and the real exchange rate. If you were to decide whether to buy domestic goods or foreign goods, which rate would be more relevant? Explain.

What are official reserve transactions? Explain their importance in the balance of payments.

What is the multiplier mechanism in macroeconomics?

How is equilibrium in the goods market determined in the two-sector model?

What does the two-sector model in macroeconomics include?

How is the marginal propensity to consume (MPC) defined?

What is the main focus of Keynesian theory in macroeconomics?

Which of the following is a final good?

How are prices and employment levels generally related in macroeconomics?

What is meant by aggregate output in macroeconomics?