Open Economy

Definition

An open economy refers to a country that engages in international trade and has economic interactions with other nations. It allows the flow of goods, services, capital, and resources across its borders.

Analogy

Imagine an open marketplace where people from different countries come together to exchange goods and services freely. Just like this marketplace, an open economy enables countries to participate in global trade and benefit from the exchange of resources.

Related terms

Trade Surplus: A trade surplus occurs when a country's exports exceed its imports, resulting in a positive balance of trade.

Trade Deficit: A trade deficit happens when a country's imports surpass its exports, leading to a negative balance of trade.

Foreign Direct Investment (FDI): FDI refers to investments made by individuals or companies from one country into businesses located in another country. It promotes economic growth and creates job opportunities.