Home > Open economy
An open economy is an economy in which people, including businesses, can trade in goods and services with other people and businesses in the international community at large. This contrasts with a closed economy in which international trade cannot take place.The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade.
There are a number of advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose from. As well consumers have an opportunity to invest their savings outside of the country.
1 Economic models of an open economy
1.1 The basic model
The basic economic model of an open economy is the same as a closed economy model except two new terms are added: Exports (X) and imports (M):
-
With Y being gross domestic productIn economics, the gross domestic product GDP is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period. Definition GDP is defined as the total value of all goods and services p / National income, is consumer consumption of domestic goods and services, is investment in domestic goods and services, is government expenditures on domestic goods and services. The term (EX - IM) is usually called net exports and is sometimes designated with the term NX.
2 See also
- Exchange rateIn finance, the exchange rate between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 120 Japanese Yen to the Dollar means that ¥120 is worth the same as $1. An exchange rate is also known as
EconomicsEconomics is the social science studying how society uses its limited resources to meet desires and wants. Put otherwise, economics studies what, how and for whom society produces. This involves analyzing the production, distribution and consumption of go
