A “closed economy” is an economy in which
[UPSC Civil Services Exam – 2011 Prelims]
(a) the money supply is fully controlled
(b) deficit financing takes place
(c) only exports take place
(d) neither exports nor imports take place
- A closed economy is characterized by the absence of trade with other economies.
- It is self-sufficient, meaning there are no imports coming into the country and no exports leaving the country.
- The objective of a closed economy is to fulfill the needs of domestic consumers solely from within its own borders.
- However, closed economies can be inefficient due to the lack of access to raw materials produced elsewhere that are essential inputs for final goods.
- Governments may protect specific industries from international competition using measures like quotas, subsidies, and tariffs.
- It’s important to note that in practice, there are no nations with completely closed economies.