Chapter Questions
Explain the relationship of balance of payment and exchange rate.
Why must the external balance be in balance?
Explain the difference between fixed and flexible exchange rate.
How does the open economy affect the goods market? Explain.
Capital inflow affects the balance of payment equilibrium. What is the effect of the exchange rate in it?
How does internal and external equilibrium get disturbed? What are the policies required to correct it?
Explain the Mundell- Fleming model with relation to fixed exchange rate and capital mobility.
Explain the Mundell- Fleming model with reference to fixed exchange rate along with the effect of the monetary and fiscal policy on it.
What is the effect of flexible exchange rate and monetary and fiscal policy on Mundell- Fleming model?
Explain the term competitive depreciation.
Explain the role of prices in an open economy.
Explain the term devaluation in detail.
What is J curve effect?
Explain the monetary approach to balance of payment.
What is exchange rate overshooting?
Explain policy dilemma in the equilibrium of economy.
What are the adjustments required to reduce the twin deficit in an economy?
Exchange rate overshooting reduces the trade deficit of country.
Explain the external sector equilibrium in detail.
What is the macroeconomic stabilization approach? Explain.
Exchange rate depreciation leads to increase in the price level in a country. Explain.
Devaluation of currency helps to reduce the trade deficit. Discuss.
Export lead policies help to achieve the balance of payment equilibrium. How can the disequilibrium in the capital account of a county corrected?
Explain the relation of currency appreciation and depreciation with effect to interest rate. How it will help to make equilibrium in the balance of payment?
Write a note on the followings -a) Mundell- Fleming modelb) Perfect capital mobility and flexible exchange ratec) Policy effect of Mundell- Fleming modeld) Goods market equilibrium in an open economye) Exchange rate system