CHAPTER 7

Balance of Payments

“The best way to destroy the capitalist system [is] to debauch the currency”

—Vladimir Lenin

Topics Covered

  • Foreign exchange rate:
    • Meaning (fixed and flexible)
    • Merits and demerits
    • Determination through demand and supply
  • Balance of Payments
  • Balance of payments accounts:
    • Meaning
    • Components
  • A brief analysis of recent exchange rate issues

CHAPTER AT A GLANCE

  1. An open economy is one which interacts with other countries through various channels. This happens in three ways:
    1. Output Market: An economy can trade in goods and services with other countries. This widens choice - as consumers and producers can choose between domestic and foreign goods.
    2. Financial Market: An economy can buy financial assets from other ...

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