Open economy
From Wikipedia, the free encyclopedia
| Economies |
| Sectors and Systems |
| Closed economy |
| Dual economy |
| Gift economy |
| Informal economy |
| Market economy |
| Mixed economy |
| Open economy |
| Participatory economy |
| Planned economy |
| Subsistence economy |
| Underground economy |
| Virtual economy |
| Real-World Examples and Models |
| Anglo-Saxon economy |
| American School |
| Global economy |
| Hunter-gatherer economy |
| Information economy |
| New industrial economy |
| Palace economy |
| Plantation economy |
| Social market economy |
| Transition economy |
| Ideologies and Theories |
| Capitalist economy |
| Corporate economy |
| Natural economy |
| Socialist economy |
| Token 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.
[edit] Economic models of an open economy
[edit] The basic model
The basic economic model of an open economy is the same as that of a closed economy model except two new terms are added: Exports <math>(EX)</math> and imports <math>(IM)</math>:
- <math>Y = C^d + I^d + G^d + (EX - IM)</math>
With Y being gross domestic product / national income, <math>C^d</math> is consumer consumption of domestic goods and services, <math>I^d</math> is investment in domestic goods and services, <math>G^d</math> is government expenditures on domestic goods and services. The term <math>(EX - IM)</math> is usually called net exports and is sometimes designated with the term NX.
