Open Economy

Name: AP Macroeconomics Unit 6: Open Economy
Availability: InStock

10–13% of the exam3 lessons · 41 min

What this unit covers

The topics below follow the published Macro course framework for Unit 6. This unit is worth 10–13% of the exam, so budget your time against that rather than against how long the unit takes to teach.

Balance of paymentsExchange ratesTradeCapital flows

Lessons in this unit

The Balance of Payments13 min · 3 objectivesIdentify the components of the current account and the financial (capital) account · Classify international transactions into the correct account · Explain why the current and financial accounts offset each other
The Foreign Exchange Market14 min · 3 objectivesExplain how supply and demand determine a flexible exchange rate · Distinguish appreciation from depreciation of a currency · Predict how changes in demand or supply shift the equilibrium exchange rate
Exchange Rates, Trade & Capital Flows14 min · 3 objectivesConnect monetary and fiscal policy to exchange rates through interest rates and capital flows · Explain how exchange rate changes affect net exports and aggregate demand · Analyze how capital flows respond to differences in real interest rates

Formulas in Unit 6

Balance of payments identity

Current account + Financial (capital) account ≈ 0

A current account deficit is matched by a financial account surplus (net capital inflow), and vice versa. The two accounts offset.

Exchange rate movements

Increase in demand for a currency ⇒ appreciation · Increase in supply of a currency ⇒ depreciation

One currency’s appreciation is the other’s depreciation. Appreciation raises export prices and lowers import prices; depreciation does the reverse.

The interest rate → exchange rate → net exports chain

Domestic real interest rate ↑ → capital inflow → currency appreciates → net exports ↓ → AD ↓

Reverse every arrow when the domestic interest rate falls: capital outflow, depreciation, higher net exports, AD up.

What examiners penalize here

Remember the offset: **current account deficit ⇔ financial account surplus**. If an exam prompt says a nation imports far more than it exports, expect a matching inflow of foreign capital financing that gap.
On forex diagrams, label the axis carefully: the price is the exchange rate (foreign currency per unit of the currency shown). Shift the correct curve — **demand** for capital-inflow and export stories, **supply** for capital-outflow and import stories — and state the effect on net exports.
Free-response questions increasingly chain the three markets: money market → interest rate → forex → net exports → AD. Practice tracing a single policy all the way through, keeping every arrow’s direction consistent — that full linkage is where the points are.

Practice Macro

Our practice bank is drawn from across the whole course rather than filtered to one unit, which is closer to how the exam asks anyway — it will not tell you which unit a question is testing.

38 practice questionsEvery one with a written explanation FRQ trainerWritten answers scored against the rubric Macro study guideAll units, weights and score data in one place All 6 Macro unitsThe full course

Questions about this unit

How much of the AP Macroeconomics exam is Unit 6?

Unit 6, Open Economy, is worth 10–13% of the Macro multiple-choice section according to the published course framework. Across all 6 units that makes it a substantial share — heavier than an even split would give it.

What topics are covered in Macro Unit 6?

Open Economy covers Balance of payments, Exchange rates, Trade and Capital flows.

How should I study Macro Unit 6?

Read the 3 lessons below first — about 40 minutes — then work practice questions on these topics. Finish with practice questions and read the explanation for every one you get right by elimination as well as the ones you miss.

All 6 units of AP Macroeconomics

Unit names, topics and exam weights follow the published College Board course framework for AP Macroeconomics. AP® is a trademark registered by the College Board, which does not endorse this site.