Macro Economics (Open Economy Macroeconomics)
This Topic Covers the Following Topics.
- Introduction to Open Economy Macroeconomics
- Definition and characteristics of an open economy
- Distinction between open and closed economies
- Components of an Open Economy
- Output Market (trade in goods and services)
- Financial Market (trade in financial assets)
- Labor Market (movement of labor between countries)
- Balance of Payments (BoP)
- Definition and structure of the Balance of Payments
- Current Account (trade in goods and services, transfer payments)
- Capital Account (transactions in assets, Foreign Direct Investments (FDIs), Foreign Institutional Investments (FIIs))
- Financial Account (new classification as per IMF standards)
- Errors and Omissions in BoP
- Current Account and Capital Account
- Components of Current Account: trade balance, net invisibles
- Components of Capital Account: external assistance, debt, foreign investments
- Foreign Exchange Market
- Definition and functioning of the foreign exchange market
- Participants in the foreign exchange market
- Types of transactions and their impact on exchange rates
- Exchange Rate Determination
- Flexible (Floating) Exchange Rate System
- Fixed Exchange Rate System
- Managed Floating Exchange Rate System (Dirty Floating)
- Determinants of exchange rates (demand and supply, speculation, interest rates, income levels)
- Purchasing Power Parity (PPP) Theory
- Explanation of PPP and its impact on long-run exchange rates
- Calculation of exchange rates based on price levels
- Impact of Exchange Rate Changes
- Depreciation and appreciation of currency
- Effects on exports, imports, and overall economic stability
- Fixed Exchange Rate System
- Gold Standard and Bretton Woods System
- Role of government intervention and official reserves
- Devaluation and Revaluation of currency
- Merits and Demerits of Different Exchange Rate Systems
- Advantages and disadvantages of flexible and fixed exchange rate systems
- Comparative analysis of different systems
- Managed Floating Exchange Rate System
- Explanation of how central banks intervene in exchange rates
- Role of official reserve transactions
- International Monetary System
- Historical overview (Gold Standard, Bretton Woods System)
- Current scenarios and practices in exchange rate management
- Macroeconomic Policies in Open Economies
- Fiscal and monetary policies
- Balance of payments equilibrium and adjustments
- Policy implications for exchange rate management
- Real Exchange Rate and Competitiveness
- Real vs. nominal exchange rates
- Impact of inflation, productivity, and trade policies on competitiveness
- Factors Affecting Net Exports and Trade Balance
- Relationship between exchange rates, domestic and foreign income, and net exports
- Role of aggregate demand in an open economy
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