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Economy: Closed Economy and Open Economy Video Lecture | Crash Course for Haryana Public Service Commission (HPSC) - HPSC (Haryana)

FAQs on Economy: Closed Economy and Open Economy Video Lecture - Crash Course for Haryana Public Service Commission (HPSC) - HPSC (Haryana)

1. What is the difference between a closed economy and an open economy?

Ans. A closed economy is one that does not engage in international trade; it is self-sufficient and relies on its own resources for goods and services. In contrast, an open economy interacts with other economies, allowing for the exchange of goods, services, and capital across borders. This interaction can lead to benefits such as increased market access and diversification of goods but also exposes the economy to global economic fluctuations.

2. What are the advantages of a closed economy?

Ans. The advantages of a closed economy include the protection of domestic industries from foreign competition, which can foster local job creation and economic stability. It allows the government to control economic activities more effectively and can lead to the preservation of cultural identity by limiting foreign influence. Additionally, a closed economy can ensure that resources are utilized to meet local needs first, potentially leading to sustainable development.

3. What are the disadvantages of an open economy?

Ans. The disadvantages of an open economy include vulnerability to global economic shifts, such as recessions or trade disputes, which can adversely affect local industries. It can also lead to an influx of foreign goods that may undermine domestic producers. Additionally, an open economy may result in capital flight, where investments leave the country for more attractive opportunities elsewhere, potentially destabilizing the local economy.

4. How does trade balance affect an open economy?

Ans. Trade balance refers to the difference between a country's exports and imports. In an open economy, a positive trade balance (more exports than imports) can strengthen the local currency and boost economic growth. Conversely, a negative trade balance (more imports than exports) may lead to increased debt and currency depreciation. Maintaining a healthy trade balance is crucial for economic stability and growth, influencing factors like employment rates and inflation.

5. What role does government policy play in shaping closed and open economies?

Ans. Government policy is pivotal in shaping both closed and open economies. In a closed economy, policies may focus on protectionism, such as tariffs and quotas, to shield local industries from foreign competition. In an open economy, policies might promote free trade agreements, reduce trade barriers, and encourage foreign investment to enhance economic growth. The effectiveness of these policies can significantly impact economic performance, employment, and overall prosperity.

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Oct 21, 2025 Last updated

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