Closed Economy
A closed economy is an economic system in which there is no foreign trade or investment. This means that all goods and services are produced and consumed within the country’s borders. A closed economy is also known as an autarky or a self-sufficient economy. In a closed economy, the government controls the production and distribution of goods and services, and the prices of those goods and services. The government also sets the exchange rate for its currency and controls the flow of capital in and out of the country.
History of the Term
The concept of a closed economy has been around since the early days of economic thought. In the 18th century, the French Physiocrats argued that a closed economy was the most efficient way to organize an economy. They argued that a closed economy would be able to produce the most goods and services with the least amount of resources. This idea was later adopted by the German economist Karl Marx, who argued that a closed economy was the most efficient way to organize a socialist economy.
In the 20th century, the concept of a closed economy was adopted by many countries, particularly those in the Soviet bloc. These countries adopted a closed economy in order to protect their economies from the influence of foreign countries. This allowed them to control the production and distribution of goods and services, as well as the prices of those goods and services.
Comparison Table
| Closed Economy | Open Economy |
|---|---|
| No foreign trade or investment | Foreign trade and investment allowed |
| Government controls production and distribution | Market forces control production and distribution |
| Government sets exchange rate | Market forces set exchange rate |
| Government controls capital flow | Market forces control capital flow |
Summary
A closed economy is an economic system in which there is no foreign trade or investment. This means that all goods and services are produced and consumed within the country’s borders. A closed economy is also known as an autarky or a self-sufficient economy. In a closed economy, the government controls the production and distribution of goods and services, and the prices of those goods and services. The government also sets the exchange rate for its currency and controls the flow of capital in and out of the country. For more information about closed economies, you can visit websites such as the World Bank, the International Monetary Fund, and the United Nations.
See Also
- Autarky
- Open Economy
- Exchange Rate
- Capital Flow
- Protectionism
- Globalization
- International Trade
- Balance of Payments
- Foreign Direct Investment
- Economic Development
