Chapter 6 of NCERT Class 12 Macroeconomics, Open Economy Macroeconomics, introduces students to how a country interacts with the rest of the world economically. It explains key concepts like foreign trade, balance of payments, exchange rates, foreign exchange markets, and how economic policies affect international trade and capital flows. This chapter connects Indian economy to the global setup and is highly relevant in today’s time when no country operates in isolation.
I chose to write on this chapter because many students find the topic confusing due to unfamiliar terms like current account deficit, fixed vs flexible exchange rate, and devaluation. But this chapter actually provides the base to understand how India trades with other countries, how the rupee’s value fluctuates, and how policies like export promotion or import tariffs affect our economy. From exam point of view, questions from this chapter often involve definitions, diagrams and short numerical-based questions. I’ve explained the main concepts below in a clear and simple way, using Indian examples, and also included the official link to download the NCERT PDF for Chapter 6.
What is an Open Economy?
An open economy is one that trades goods, services, and capital with other countries. Unlike a closed economy (which doesn’t interact with the rest of the world), an open economy imports and exports, and allows movement of funds across borders.
India is a classic example of an open economy. We import crude oil, electronics, gold, and export software, textiles, and agricultural products.
Key Concepts in Chapter 6
1. Balance of Payments (BoP)
BoP is a record of all economic transactions between a country and the rest of the world in a year. It includes:
- Current Account – trade in goods and services, income, and transfers
- Capital Account – investments, loans, and changes in foreign exchange reserves
If a country imports more than it exports, it runs a current account deficit.
2. Foreign Exchange Market
This is where one currency is exchanged for another. For example, when Indian businesses import from the USA, they need to exchange rupees for dollars.
- Nominal exchange rate: Price of one currency in terms of another
- Real exchange rate: Adjusted for inflation differences
- Effective exchange rate: A weighted average with respect to a basket of foreign currencies
3. Exchange Rate Regimes
There are mainly two systems:
| Type | Explanation |
|---|---|
| Fixed Exchange Rate | Set and maintained by the government or central bank |
| Flexible (Floating) Exchange Rate | Determined by demand and supply in the market |
India follows a managed floating exchange rate, where the RBI intervenes to control extreme fluctuations.
Simple Numerical Examples in Chapter 6
Many questions in this chapter require basic calculation. For example:
If exports = ₹400 crore, imports = ₹500 crore
Then, current account balance = 400 – 500 = –₹100 crore (deficit)
These questions are often asked in CBSE exams for 1 or 3 marks.
Download NCERT Class 12 Macroeconomics Chapter 6 PDF
You can directly download the official NCERT Class 12 Macroeconomics PDF of Chapter 6: Open Economy Macroeconomics from here. This is the most reliable and updated version for CBSE students.
