Open Economy MacroeconomicsClass 12 Introductory Macroeconomics Assertion & Reason Questions

Assertion (A): The open economy multiplier is smaller than the closed economy multiplier.

Reason (R): In an open economy, a portion of any increase in income is spent on imports, which is a leakage from the circular flow of domestic income.

Assertion (A): The Balance of Trade (BOT) is the same as the Balance on Current Account.

Reason (R): The Current Account includes trade in goods, trade in services, and transfer payments.

Assertion (A): Under a flexible exchange rate system, an increase in demand for imports leads to depreciation of the domestic currency.

Reason (R): An increased demand for imports raises the demand for foreign exchange, causing its price to rise in terms of the domestic currency.