Economics Class 12 Revision Notes Macroecnomics Chapter 6 Open Economy Macro Economics

1.Open Economy
It is one in which trading is done with other nations in goods and service and most often in financial assets.

2.Balance of Payment It is a systematic record of all economic transaction between the residents of a country, and the rest of the world during a year.

3.Current Account
Transactions relating to trade in goods and services and transfer payment constitute the current account.
Components of Current Account
(i)Visible Trade (ii) Invisible Trade (iii) Transfer Payment

4.Capital Account It represents international capital transactions which include sale and purchase of assets such as bonds equities, lands , loans, bank account etc.
Components of capital account
(i) Foreign Investment
(ii) Loans
(iii) Banking Capital Transaction.

5. Balance of Trade It means the systematic records of visible imports and exports in a given year.
BOP = Visible Exports — Visible Imports

6.Autonomous Transaction
It refers to those international economic transaction which are taken with the motive of profit.

7.Accommodating Items
All the items related to the monetary transfers correcting balance of payments dis equilibrium are accommodating items.

8.Foreign Exchange Market
The market in which currencies are bought and sold is called the foreign exchange market.

9.Foreign Exchange Rate
The rate at which one currency i exchanged for other is known as the rate of exchanges n foreign exchange rate.

10.Fixed Exchanges Rate
System It refers to the rate ni exchange fixed by the government.
It has two important variants
(i)Gold standard system of exchanges rate.
(ii)Bretton woods system of exchanges rate.

11.Determination of Foreign Exchange Rate
It i determined by the forces of supply and demand in the foreign exchanges market.

It is the fall in the value of domestic currency in relation to foreign currency as planned by the government In a situation exchanges rate is fixed by government.

It is the fall in the value of domestic currency in relation to foreign currency in a situation when exchange rate is determined by the forces of demand and supply in tin international money market.

14.Managed Floating
It is a system that allows adjustments in exchanges rate according to set of rules and regulation which are officially declared in the foreign exchanges market.