CBSE Class 12 Macro-Economics Chapter-6 Important Questions - Free PDF Download
In the field of CBSE Class 12 Macro-Economics, Chapter 6 - Open Economy Macroeconomics, important questions hold paramount significance for students' exam preparation. These carefully curated sets of questions serve as invaluable resources, enabling students to grasp the complexities of an open economy's macroeconomic aspects. By focusing on crucial topics like balance of payments, foreign exchange rates, and their influence on the country's economy, these important questions help students strengthen their conceptual understanding and analytical abilities. Practicing these questions allows students to assess their knowledge, identify weak areas, and gain confidence in tackling exam-related challenges. In this article, we delve into the significance of these essential questions to excel in CBSE Class 12 Macro-Economics Chapter 6 - Open Economy Macroeconomics. Students can download the PDF for free from Vedantu.. These questions and answers are prepared by our expert Economics teachers from the latest edition of CBSE books as per updated guidelines.
Table of Content
Important Questions for CBSE Class 12 Macro-Economics Chapter 6 Open Economy Macroeconomics - Benefits of Studying Important Questions and Answers
The following are some of the prime benefits of studying important questions on CBSE Class 12 Macro-Economics Chapter 6 - Open Economy Macroeconomics.
Important Questions on Chapter 6 - Open Economy Macroeconomics are prepared by our expert faculty, with vast experience in the subject and by keeping in mind the updated CBSE guidelines.
Each and every question and answer are explained in a detailed step-by-step manner to help the students in clearing their doubts about the concept of the chapter.
Studying these questions and answers on a regular basis will help students to be well prepared for the Class 12 Board exams, and they will be able to secure good marks in the examination.
Studying important questions will help the students to revise the chapter consciously, that is the students will revise only the important points of the chapter before the exam.
While the students study these important questions, they will understand which are the important topic coverage of the chapter, and accordingly, they will prioritize their study.
Very Short Answer Questions (1 Mark)
1. Foreign exchange rate of a country is the
a) price of a foreign good in terms of the domestic good
b) price of a foreign trade in terms of the domestic trade
c) price of a foreign factor in terms of the domestic factor
d) price of a foreign good in terms of the domestic currency
Ans: (d) price of a foreign good in terms of the domestic currency
2. A source of supply of foreign exchange is
a) Donations given
b) Imports
c) Exports
d) Gifts
Ans: (c) Exports
3. Balance of payment Accounts is a
a) Systematic record of all receipts between the residents of a country and abroad
b) Systematic record of all expenditures between the residents of a country and abroad
c) Systematic record of all economic transactions between the residents of a country
d) Systematic record of all economic transactions between the residents of a country & abroad
Ans: (d) Systematic record of all economic transactions between the residents of a country & abroad
4. A source of demand for foreign exchange is
a) Brokerage of goods & services
b) Smuggle of goods & services
c) Export of goods & services
d) Import of goods & services
Ans: (d) Import of goods & services
5. A deficit in balance of trade indicates
a) That the imports of good are equal to the exports
b) None of the above
c) That the imports of good are less than the exports
d) That the imports of good are greater than the exports
Ans: (d) That the imports of good are greater than the exports
6. What do you mean by Foreign exchange market?
Ans: The foreign exchange market is the marketplace where international currencies are exchanged for one another.
7. Define a flexible exchange rate.
Ans: The flexible exchange rate, also known as free exchange rate is a rate which is governed by the free play of demand and supply forces in a foreign exchange market.
8. What is meant by appreciation of currencies?
Ans: Currency appreciation refers to an increase in the exchange value of a currency as compared to the currency of another country. For example, if earlier $1 was equal to Rs 75, but later, the value of $1 moves from Rs 75 to Rs 72, In such a situation, we can say that the value of rupee is appreciating.
9. What is the balance of visible items in the balance of payments account called?
Ans: Balance of trade
10. What is meant by managed floating?
Ans: It is a system that allows exchange rate modifications based on a set of rules and regulations that are publicly published in the foreign exchange market. It is an effort to keep the exchange rate within a specific limit.
11. When does a situation of deficit in BOP arise?
Ans: When the payments in respect to the economic transactions of a country with the rest of the world surpasses its receipts, it is called a BOP deficit.
Hence, a BOP shortfall occurs when autonomous receipts are fewer than autonomous payments.
12. Fixed exchange rate is
a) is fixed by the foreign exchange market
b) is fixed by the businesses in an economy
c) is fixed by the anybody in an economy
d) is fixed by the government in an economy
Ans: (d) is fixed by the government in an economy
13. Flexible exchange rate is
a) Fixed
b) Ordered
c) Can’t say
d) Determined
Ans: (d) Determined
14. Point out a merit of fixed exchange rate
a) None
b) Ensures supply of the fixed exchange rate
c) Ensures demand for the fixed exchange rate
d) Ensures stability of the fixed exchange rate
Ans: (d) Ensures stability of the fixed exchange rate.
15. Point out a demerit of fixed exchange rate
a) Promotes the objectives of free markets
b) Ensures supply of the fixed exchange rate
c) None
d) Contradicts the objectives of free markets
Ans: (d) Contradicts the objectives of free markets
Short answer Questions (3 or 4 Marks)
16. Why does demand for foreign exchange rise when price falls?
Ans: When the price of foreign exchange falls, the exchange value of domestic currency rises while the value of foreign currency declines. This indicates that foreign goods become less expensive and domestic demand increases. Rising domestic demand for international goods indicates increased need for foreign currency. As a result, there is a link between foreign exchange pricing and demand.
For example, When the price of 1 US Dollar falls from Rs 75 to Rs 70, It means that the imports will rise, and domestic demand for US goods will increase as the US products will be cheaper to purchase. Hence, a demand for the US dollar will also rise.
17. Give two examples and explain why there is a rise in demand for a foreign currency when its price falls.
Ans: The two examples are:
When the price of foreign exchange falls, the exchange value of domestic currency rises while the value of foreign currency falls, and foreign goods become cheaper in comparison to domestic goods. Rising domestic demand for foreign goods implies increased demand for foreign currency.
As the value of the foreign currency falls, tourists from the home country find it less expensive to travel abroad. As a result, demand for foreign currency rises.
18. Distinguish between fixed and flexible exchange rate.
Ans: The differences between between fixed and flexible exchange rate are as follows:
19. Distinguish between autonomous and accommodating transaction of balance of payment account.
Ans: The difference between autonomous and accommodating transaction of balance of payment account is as follows:
20. What determines the flow of foreign exchange into the country?
Ans: The following variables contribute to the flow of foreign exchange into the country:
Foreigners purchasing domestic goods, in terms of exports.
Foreigners buying the assets of the home country.
In-country foreign direct investment and portfolio investment.
Foreign exchange speculative buying, that will lead to inflow of the foreign exchange.
Foreign tourists visiting various locations in India.
Long Answer Questions (6 Marks)
21. Give the meaning of foreign exchange and foreign exchange rate. Giving reason, explain the relation between foreign exchange rate and demand for foreign exchange.
Ans: Foreign Exchange: It refers to the amount of foreign currency held in relation to the amount of domestic currency. Foreign exchange is important in international transactions. All currencies other than the Indian rupee are considered as foreign exchange in India.
Foreign Exchange Rate: The rate at which one currency is exchanged for another is referred to as the foreign exchange rate. As a result, an exchange rate can be defined as the cost of one currency in terms of another. The exchange rate is often expressed in terms of rupees per unit of foreign currency. As a result, an exchange rate represents the external purchasing power of money.
There are two approaches for determining foreign exchange rates- one technique is based on the conventional gold standard mechanism, while the other is based on the classical paper currency system. Because no standard monetary unit is currently exchanged for gold, the gold standard mechanism no longer operates. Foreign exchange demand is created when Indians and commercial firms desire to make payments to US nationals for purchasing US goods and services, make gifts to US individuals, or buy assets in the US. The greater the amount of imports, the greater the demand for foreign currency.
Relation between foreign exchange rate and demand for foreign exchange:
An inverse relationship exists between the foreign exchange rate and the demand for foreign exchange.
The foreign currency demand curve is always downward sloping, indicating an inverse relationship between demand and exchange rate.
When the exchange rate rises, more units of domestic currency are required to be paid for the same unit of foreign money. This raises the cost of import. As a result, imports reduce, causing a drop in demand for foreign exchange.
In the figure given below, the demand for foreign currency is represented by the DD curve. When the exchange rate reaches R1, the demand for foreign money decreases to Q1. And, when the exchange rate falls to R2, the demand for foreign currency rises to Q2
22. Explain the distinction between autonomous and accommodating transactions in balance of payments. Also explain the concept of balance of payments deficit in this context.
Ans: The distinction between autonomous and accommodating transactions in balance of payments are as follows:
BOP deficit:
When a country's payments for autonomous transactions exceed its receipts, the gap is referred to as the BOP deficit. It can be calculated as follows:
Deficits in BOP occur when the receipts on account of autonomous transactions are fewer than payments on account of autonomous transactions.
If the home country's receipts are Rs. 500 crore and payments are Rs. 600 crore, the BOP deficit will be calculated 600-500= 100 Crore.
When a country has a balance of payments deficit, it imports more products, services, and capital than it exports.
The country has to borrow from other countries in order to pay for its imports..
In the short run, this contributes to the country's economic growth. It's analogous to taking out a student loan to pay for college, as ultimately college will help in shaping the future of the student.
23. Distinguish between balance of trade account and current account balance of BOP account.
Ans: The following are the differences between the trade balance and the current account balance:
Important Questions for CBSE Class 12 Macro-Economics Chapter 6 - Open Economy Macroeconomics - Topics Covered
It is important to have a clear idea of the key concepts covered in the chapter before preparing for that particular chapter. Students will learn about the below topics from Chapter 6 of Class 12 Macro-Economics.
6.1 The Balance of Payments
6.1.1 Current Account
6.1.2 Capital Account
6.1.3 Balance of Payments Surplus and Deficit
6.2 The Foreign Exchange Market
6.2.1 Foreign Exchange Rate
Demand for Foreign Exchange
Supply of Foreign Exchange
6.2.2 Determination of the Exchange Rate
Flexible Exchange Rate
Speculation
Interest Rates and the Exchange Rate
Income and the Exchange Rate
Exchange Rates in the Long Run
Fixed Exchange Rates
6.2.3 Merits and Demerits of Flexible and Fixed Exchange Rate Systems
6.2.4 Managed Floating
6.3 Exchange Rate Management: The Indian Experience
CBSE Class 12 Macro-Economics Chapter 6 Open Economy Macroeconomics - Extra Questions for Practice
1. How will RBI function in bringing down the high rate of foreign exchange?
Ans. RBI can sell the foreign currency in exchange for domestic currency. In this manner, the RBI can bring down the high rate of foreign exchange.
2. What do you know about the ‘Managed Floating Rate’?
Ans. Managed Floating Rate is a system that allows the exchange rate to adjust according to the specified rules of regulation of the foreign exchange market.
3. Name two types of transactions in the current account?
Ans. Two types of transactions are:
Direct investment
Private transactions
Tips to Study Economics in Class 12 Better
Check out these suggested tips which might help you to study Economics in a better way:
Economics is a study that requires logical understanding. It might seem like a theoretical subject, but moreover, this is a subject that requires logical understanding.
In economics, the students are required to practice writing the long answers thoroughly.
They must know how to manage their time while writing Economics answers for the exam.
Study the Previous Year’s Question papers and solve the NCERT Solutions in order to gain the totality of the subject.
Conclusion
The important questions for CBSE Class 12 Macro-Economics Chapter 6 - Open Economy Macroeconomics serve as valuable aids for students preparing for their examinations. These questions cover essential topics related to an open economy's macroeconomic aspects, including balance of payments, foreign exchange rates, and their implications on the economy. By practicing these questions, students can strengthen their understanding of the chapter, improve problem-solving skills, and enhance exam readiness. The well-curated nature of these questions ensures comprehensive coverage of key concepts, making them an effective tool for exam preparation. However, it is essential to complement the use of important questions with thorough study of the entire chapter and seek guidance from teachers for a comprehensive learning experience.
Important Study Material Links for Class 12 Macroeconomics Chapter 6
CBSE Class 12 Economics Important Questions Textbooks
Chapter-wise Links for Macroeconomics Class 12 Questions
Related Study Materials Links for Class 12 Macroeconomics
Along with this, students can also download additional study materials provided by Vedantu for Macroeconomics Class 12–
FAQs on Important Questions for CBSE Class 12 Macro-Economics Chapter 6 Open Economy Macroeconomics
1. What are the most expected 3-mark and 5-mark important questions in CBSE Class 12 Macro-Economics Chapter 6: Open Economy Macroeconomics for 2025–26?
Key questions tend to focus on balance of payments (BOP), distinguishing between fixed and flexible exchange rates, sources of foreign exchange, and the impact of currency appreciation or depreciation. Application-based problems involving BOP deficit/surplus and scenario-based analysis of foreign exchange rate changes often appear as 3-mark or 5-mark questions in board exams.
2. How should students structure answers for high-weightage questions on exchange rates and balance of payments in board exams?
To score well on 5-mark or HOTS questions, start with precise definitions, illustrate with suitable examples or diagrams, and conclude with implications or differences. Use headings such as 'Definition', 'Example', and 'Conclusion' for clarity. For distinctions or merits/demerits, use comparative tables or bulleted points for better organization.
3. Why does the demand for foreign currency generally rise when its price falls?
When the foreign exchange rate declines (i.e., the domestic currency appreciates), imports become cheaper for domestic consumers. This leads to:
- Increased demand for imported goods and services
- More domestic tourists able to afford foreign travel
- Businesses finding foreign machinery or technology less expensive
This increased purchasing triggers higher demand for foreign currency in the market.
4. What are the main sources of demand and supply of foreign exchange as per CBSE board trends?
Sources of supply include:
- Exports of goods and services
- Foreign direct investment (FDI) and portfolio investments
- Foreign tourists spending domestically
- Remittances received from abroad
- Imports of goods and services
- Indian citizens investing overseas
- Payment of interest or dividends abroad
- Indian tourists traveling internationally
5. What distinguishes autonomous from accommodating transactions in the Balance of Payments, and why is this distinction important for 5-mark answers?
Autonomous transactions (above the line) occur for economic motives like trade or investment and directly influence the BOP balance. Accommodating transactions (below the line) are undertaken to finance imbalances from autonomous flows—such as borrowing or using reserves. Correctly differentiating these helps avoid marks loss in analytical questions.
6. How do examiners typically assess application-based knowledge about BOP deficits or surpluses in board papers?
Students are often given scenarios—for example, where payments exceed receipts in India's BOP—and asked to:
- Calculate deficit or surplus with provided figures
- Identify economic causes and consequences
- Suggest corrective measures, such as RBI interventions or policy changes
Strong answers link causes, calculation, and policy responses clearly.
7. What is a managed floating exchange rate and how is it different from other exchange rate systems?
A managed floating exchange rate combines elements of both fixed and flexible systems. The central bank intervenes periodically to stabilize or influence the rate, but does not maintain a strict peg. By contrast, fixed rates are government-set and flexible rates are purely market-driven without official intervention.
8. How can a prolonged BOP deficit affect India's economy, and what topics are likely to be tested around this?
A prolonged BOP deficit may lead to:
- Depletion of foreign exchange reserves
- Pressure on currency value (depreciation of the rupee)
- Inevitability of borrowing or seeking foreign aid
Boards may ask students to analyze these effects, link to case studies, or connect with policy interventions by authorities like RBI.
9. What are the most common conceptual traps for students answering 5-mark questions related to open economy macroeconomics?
Common traps include:
- Confusing Balance of Trade (BOT) with Balance of Payments (BOP)
- Omitting the inverse relationship between exchange rate and foreign currency demand
- Misclassifying transactions as autonomous/accommodating based on account type instead of economic motive
- Ignoring implications of currency appreciation/depreciation on exports and imports
10. What strategies can help students prioritize and revise important questions for Chapter 6 effectively before the CBSE board exams?
Effective strategies include:
- Practicing previous years’ important questions and board trends
- Creating summary tables for differences (e.g., fixed vs flexible exchange rate, BOT vs BOP)
- Focusing on source-based HOTS questions
- Time-managing long answer practice and peer-discussion of scenario questions
11. How can the RBI intervene if the Indian rupee is rapidly depreciating, and why are such interventions emphasized in important board questions?
The RBI may:
- Sell foreign exchange reserves (like US dollars) to buy rupees and support its value
- Implement capital controls or alter interest rates to stabilize the market
Such interventions are exam-relevant because they directly relate to policy-level impacts on BOP and currency stability, a recurring theme in high-weightage board questions.
12. Compare two key merits and two demerits of the fixed exchange rate system as per the Class 12 syllabus.
Merits:
- Ensures stability in international prices
- Reduces uncertainty for traders and investors
- Limits flexibility of monetary policy
- Contradicts objectives of a free market system
13. In what ways is distinguishing between Balance of Trade and Balance of Payments critical for scoring in Class 12 Economics?
Being accurate allows students to answer both objective and long-answer questions effectively. The Balance of Trade reflects only goods exported and imported, while Balance of Payments is broader, covering goods, services, capital and transfer payments. Examiners look for precise and comprehensive distinctions in these areas.
14. What is meant by appreciation of currency, and how does it influence a country's exports?
Currency appreciation is an increase in the value of the domestic currency relative to others. This makes exports more expensive for foreign buyers, potentially reducing demand for the country’s goods abroad and impacting its trade balance.
15. How does understanding autonomous and accommodating transactions help in evaluating a country’s BOP position in high-order application questions?
Recognizing these transaction types enables students to analyze the factors creating BOP deficits or surpluses and to explain how governments address imbalances. Such insights are essential for scoring full marks in application and reasoning-based board questions.
