Suppose the exchange rate between the Ru | Class 12 Macro Economics Chapter Open Economy Macroeconomics, Open Economy Macroeconomics NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter Open Economy Macroeconomics. This page offers a step-by-step solution to the specific question from Exercise 1, Question 15: . With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 15:

Suppose the exchange rate between the Rupee and the dollar was Rs. 30=1$ in the year 2010. Suppose the prices have doubled in India over 20 years while they have remained fixed in USA. What, according to the purchasing power parity theory will be the exchange rate between dollar and rupee in the year 2030.

Answer:

In a closed economy, savings and investments are equal at equilibrium level of income.

However, in an open economy savings and investments differ.

Y = C + I + G + X - M
Or, Y = C + I + G + NX [As NX = X - M]
Or, Y - C - G = I + NX
Or, S = I + NX

Savings in an economy include private savings (S_p) and government savings (S_g).

So, S_p + S_g - I
Or, NX =S_p+ S_g – I
SP = Y - C - T SR = T - G

Or, NX = (Y - C - T) + (T - G) - I
Or, NX = Y - C - T +T - G - I
Or, NX = Y - C - G - I
Or, G = Y - C - I - NX
Or, G - T = Y - C - I - NX - T [Subtracting T from both sides]
Or, G - T = Y - C - T - I - NX
Or, G - T = (S_p - I) - NX
Or, G - T = (S_g- I) - (X - M) [NX = X - M]

Other Questions of Chapter Open Economy Macroeconomics

Differentiate between balance of trade and current account balance.

Explain the automatic mechanism by which BoP equilibrium was achieved under the gold standard.

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

In the above example, if exports change to X = 100, find the change in equilibrium income and the net export balance.

Discuss some of the exchange rate arrangements that countries have entered into to bring about stability in their external accounts.

Should a current account deficit be a cause for alarm? Explain.

If inflation is higher in country A than in Country B, and the exchange rate between the two countries is fixed, what is likely to happen to the trade balance between the two countries?

Calculate the open economy multiplier with proportional taxes, T = tY, instead of lump-sum taxes as assumed in the text.

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

Would the central bank need to intervene in a managed floating system? Explain why.

Popular questions of class 12 Macro Economics

What is a barter system? What are its drawbacks?

Write down some of the limitations of using GDP as an index of welfare of a country.

Explain the relation between government deficit and government debt.

From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore)
(a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300
(h) Personal Tax 500

Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.

Give the relationship between the revenue deficit and the fiscal deficit.

Explain ‘Paradox of Thrift’.

Discuss the issue of deficit reduction.

What is the difference between ex ante investment and ex post investment?

Are fiscal deficits inflationary?

Recently Viewed Questions of Class 12 Macro Economics

What is High Powered Money?

What is the difference between ex ante investment and ex post investment?

Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.

Describe the four major sectors in an economy according to the macroeconomic point of view.

What are the important features of a capitalist economy?

What are the instruments of monetary policy of RBI?

What is the difference between microeconomics and macroeconomics?

The value of the nominal GNP of an economy was Rs 2,500 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 3,000 crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?

Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

Read the question carefully and focus on the core concept being asked.
Reference examples and data from the chapter when answering questions about Open Economy Macroeconomics.
Review previous year question papers to get an idea of how such questions may be framed in exams.
Practice answering questions within the time limit to improve your speed and accuracy.
Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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