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Under the _ exchange… (Class 12 Economics SQP 2024-25, Q4)

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EconomicsCBSE Class 12 · Sample paper, session 2024-25 · 1 mark · MCQ

CBSE Class 12 Economics sample paper 2024-25: question 4

From the official CBSE sample question paper for 2024-25, section A, question 4, for 1 mark. Try it first; the hints and our step-by-step solution are below.

Q4 · 1 mark · MCQOpen Economy Macroeconomics

Under the _______ exchange rate system, market forces automatically adjust the surplus and deficit in the Balance of Payments account.
(Choose the correct option to fill up the blank)

  1. (A)fixed
  2. (B)flexible
  3. (C)managed floating
  4. (D)dirty floating

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2024-25.

Hints

Open one hint at a time and try again before the next.

Hint 1

Under which system does the central bank not intervene?

Hint 2

What happens to the rupee when imports exceed exports?

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Under a flexible exchange rate, the rate moves with demand and supply of foreign exchange.

  2. A deficit raises the price of foreign currency (making exports cheaper and imports dearer) and a surplus lowers it, so market forces automatically correct BoP imbalances. Option (B).

    1 mark

Answer: (B) flexible

Where the marks are

  • Market forces adjust the BoP under a flexible rate (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Open Economy Macroeconomics, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2024-25: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.