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Q17 (IAS/2011) Economy › External Sector & Trade › Open economy basics Answer Verified

A “closed economy” is an economy is which

Result
Your answer: —  ·  Correct: D
Explanation

A closed economy, also referred to as a state of autarky, is an economic system that does not engage in international trade. In such a model, the country is entirely self-sufficient, meaning it does not interact with other economies in the world. Consequently, there are no imports coming into the country and no exports leaving it [1]. Unlike an open economy, which allows for the free movement of goods, services, and capital across international borders, a closed economy relies solely on domestic production and internal resources. In macroeconomic modeling, the aggregate expenditure of a closed economy is represented simply as the sum of consumption, investment, and government spending (Y = C + I + G), as there are no net exports to account for [1]. While truly closed economies are rare in the modern globalized world, the concept remains a fundamental theoretical tool for economic analysis [1].

Sources

  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > BALANCE OF PAYMENTS > p. 471
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