The major difference between an open economy and a closed economy is that:
A)an open economy interacts with the rest of the world, a closed economy does not.
B)a closed economy uses rules rather than discretionary policy, an open economy uses discretionary policy.
C)an open economy is a market economy while a closed economy relies on central planning.
D)a closed economy balances budgets, an open economy does not.

Question

Quizplus · Accepted Answer

An open economy interacts with the rest of the world through trade in goods, services, and financial assets, while a closed economy does not engage in these international transactions. Therefore, option A is the correct choice. Option B is incorrect because the use of discretionary or rule-based policies is not determined by the openness of the economy. Option C is incorrect because both open and closed economies can be either market-oriented or centrally planned. Option D is also incorrect because the budget balance is not determined by the degree of openness of the economy.

The Major Difference Between an Open Economy and a Closed