CBSE Class 12 Macro Economics Chapter 6 - Open Economy Macroeconomics

Open Economy Macroeconomics Class 12 Revision Notes

In the open economy macroeconomics class 12 notes, we will begin by studying the accounting of international trade and financial flows. Here, we will discuss the meaning of the Balance of Payments. Also, we will discuss the two main accounts in the BoP – the current account and the capital account. Furthermore, we will examine the determination of the price at which national currencies are exchanged for each other. Also, we will study the major exchange rate regimes that have characterized the international monetary system.

Moreover, we will study that the closed economy income-expenditure model is amended to include international effects. We will get to know the determination of income in an open economy. We will learn that in an open economy, the demand for domestic goods is equal to the domestic demand for goods plus exports minus imports. Also, we will study the International Experience of Exchange Rate Systems. Then, we will cover the topic focusing on trade deficits, savings and investment. Thus, we will learn that trade deficits need not be alarming, in a specific situation. This happens if the country invests the borrowed funds yielding a rate of growth higher than the interest rate.

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Sub-topics under Open Economy:

Balance of Payments: In this Subtopic, we will discuss the meaning of the Balance of Payments. Also, we will discuss the two main accounts in the BoP – the current account and the capital account.
Exchange Rate: Here, we will study the major exchange rate regimes that have characterized the international monetary system. Thus, we will study about Flexible and Fixed Exchange Rates.
International Experience of Exchange Rate Systems: In this Sub-topic, we will study the International Experience of Exchange Rate Systems.
National Income Identity for Open Economy: In this topic, we will understand the meaning of National Income Identity for an open economy.
Trade Deficits, Savings and Investments: Here, we will study the meaning and effects of Trade deficits, savings and investments in an economy.

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