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Open economy
 
 
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An open economy is an economy in which people
Person

The term person in common usage means an individual human being. In the fields of law, philosophy, medicine, and others, the term also has specialised context-specific meanings....
, including business
Business

A business is a legally recognized organization designed to provide good s and/or Service to consumers. Businesses are predominant in capitalism economies, most being privately owned and formed to earn profit that will increase the wealth of its owners....
es, can trade in good
Product (business)

The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce from the Latin produce, lead or bring forth....
s and services with other people and businesses in the international community
International community

The international community is a vague term used in international relations to refer to all the countries of the world or to a group of them. The term is used to imply the existence of common duties and obligations between them, frequently in the context of calls for the respect of human rights and for action to be taken against repressive...
 at large. This contrasts with a closed economy in which international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
 cannot take place.

The act of selling goods or services to a foreign country is called export
Export

Export goods or services are provided to foreign consumers by domestic Production theory basics. It is a good that is sent to another country for sale....
ing. The act of buying goods or services from a foreign country is called import
Import

In economics, an import is any good or service brought into one country from another country in a legitimate fashion, typically for use in trade.It is a good that is brought in from another country for sale....
ing. Together exporting and importing are collectively called international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
.

There are a number of advantages for citizens of a country
Country

Country may refer to the territory of a state, or to a smaller, or former, political division of a geographical region. In another meaning of the word, the country is also a term used to refer to rural areas....
 with an open economy.






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Encyclopedia


An open economy is an economy in which people
Person

The term person in common usage means an individual human being. In the fields of law, philosophy, medicine, and others, the term also has specialised context-specific meanings....
, including business
Business

A business is a legally recognized organization designed to provide good s and/or Service to consumers. Businesses are predominant in capitalism economies, most being privately owned and formed to earn profit that will increase the wealth of its owners....
es, can trade in good
Product (business)

The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce from the Latin produce, lead or bring forth....
s and services with other people and businesses in the international community
International community

The international community is a vague term used in international relations to refer to all the countries of the world or to a group of them. The term is used to imply the existence of common duties and obligations between them, frequently in the context of calls for the respect of human rights and for action to be taken against repressive...
 at large. This contrasts with a closed economy in which international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
 cannot take place.

The act of selling goods or services to a foreign country is called export
Export

Export goods or services are provided to foreign consumers by domestic Production theory basics. It is a good that is sent to another country for sale....
ing. The act of buying goods or services from a foreign country is called import
Import

In economics, an import is any good or service brought into one country from another country in a legitimate fashion, typically for use in trade.It is a good that is brought in from another country for sale....
ing. Together exporting and importing are collectively called international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
.

There are a number of advantages for citizens of a country
Country

Country may refer to the territory of a state, or to a smaller, or former, political division of a geographical region. In another meaning of the word, the country is also a term used to refer to rural areas....
 with an open economy. One primary advantage is that the citizen consumer
Consumer

Consumer is a broad label that refers to any individuals or household that use Good generated within the economic system. The concept of a consumer is used in different contexts, so that the usage and significance of the term may vary....
s 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.

In an open economy, a country's spending in any given year need not to equal its output of goods and services. A country
Country

Country may refer to the territory of a state, or to a smaller, or former, political division of a geographical region. In another meaning of the word, the country is also a term used to refer to rural areas....
 can spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigner
Foreigner

Foreigner may refer to:*Alien , a person who is not a native or naturalized citizen of the land where they reside*Foreigner , a popular rock band in the '70s and '80s...
s.

Economic models of an open economy


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 and imports :

Y = C + I + G + (EX-IM)

With Y being gross domestic product
Gross domestic product

File:GDP nominal per capita world map IMF 2008.pngThe gross domestic product or gross domestic income is one of the measures of national income and output for a given country's economy....
 / 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 is usually called net exports and is sometimes designated with the term NX.

See also

  • Exchange rate
    Exchange rate

    In finance, the exchange rates between two currency specifies how much one currency is worth in terms of the other. It is the value of a foreign nation?s currency in terms of the home nation?s currency....
  • Terms of trade
    Terms of trade

    In international economics and international trade, terms of trade or TOT is the relative prices of a country's export to import. "Terms of trade" are sometimes used as a proxy for the relative social welfare of a country, but this heuristic is technically questionable and should be used with extreme caution....


Footnotes and sources