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Definition and Explanation of Closed and Open Economic Systems - Essay Example

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The researcher of this essay aims to define and explain a closed system of the economy and provides an example on the subject. This essay also analyzes the contradictory counterpart of a closed economy, that is the open economy, where goods and services of a country flow in international terms…
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Definition and Explanation of Closed and Open Economic Systems
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Download file to see previous pages ic system are trading of goods and services at international levels and engaging in import and export of goods and services between various countries. Therefore there is no doubt that this leads to inner and outer flows. It may be goods and services in the form of import and export or the flow of resources, such as labor, capital and currency. The flow of labor is in two ways: emigration and immigration. Emigration means the outer flow of people to different countries, whereas immigration is the inner flow of laborers into the country. Capital flow refers to foreign trade investment. Defines and explains leakages in an open system. In the open system, a there is financial model that computes the goods and services exchanged nationally. The leaks in the open system include all transactions of foreign countries. “In an open system, taxes are included in the model to show government purchases and inject money back in to the economy” (The Mechanics of Open and Closed System, 2012, para. 4).  Funds being lost due to purchases of foreign facilities can also be seen in the open system. Another structure of leakage that can happen is when US industries outsource their capital OR labor to foreign countries. Even though the industry is saving and can currently make extra profits, the cash that is leaked may not be regained later. Define and explain injections in an open system. An injection happens when a foreign or individual company purchases American commodities or facilities. If a foreign industry hires workers belonging to the US, the wages deserved by the employees are measured and injected back into the financial system. Similarly, when the local government produces purchases in America or provides facilities like welfare, the cash is injected back into the...
This essay discusses the closed economy, that is the opposite of an open economy. In a closed economic country, that were analyzed in this essay all economic activities are conducted within the boundary of the country. Such an economy is an independent economy, which means the country does not accept imports from other countries and also does not export to foreign countries. The main objective of this type of economy is to make everything available for people within the confines of the economy. Thus, it can be stated that such a country will not engage in any type of trade or have even the slightest of interactions with other countries. However, it can be seen that in the modern times closed economic countries are very rare. For example, China was a closed economy earlier and then transformed into an open economy, when the China Government understood the benefits that come along with being an open economy. Hovewer, the researcher also mentions that Brazil remains one of the most closed economies in the world today. Today, an industry aims to give more US jobs in addition to create earnings from selling to foreign countries is the important example of injection. The company “green” was identified Wind Sail Reception, Inc. is situated in Nevada and has been creating turbines to change wind to power since the year 2002. The industry sells to American energy services and European services. The income created from the European market is measured a cash injection to the economy of the United States. ...Download file to see next pagesRead More
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