Karnataka 2nd PUC Economics Notes Chapter 12 Open Economy
→ Closed economy: A closed economy is that which does any trade links with other countries of the world. It completely prohibits the import and export trade.
→ Open economy: An open economy is that economy which has all kinds of economic relations with other countries of the world. It allows exports and import trade.
→ Balance of Trade: Balance of Trade refers to the difference between the value of visible items of exports and imports, during a particular period of time.
Differences between Closed and Open Economies.
|Closed Economy||Open Economy|
|A closed economy is that which does not have any trade links with other countries of the world.||An open economy is that economy which has all kinds of economic relations with other countries of the world.|
|It completely prohibits import and export trade.||It allows for export and import trade.|
|It is policy of protection which is in effect discrimination between domestic and. foreign goods.||It is free trade policy and allows the inflow and outflow of foreign direct investment. (FDI)|
→ Multilateral trade: The multilateral trade refers to that type of trade in which three or more groups of countries involve in trade. Trade activities take place among the nations without any discrimination. Here all the countries are treated equally.
Differences between balance of Trade and Balance of Payments.
|Balance of Trade||Balance of Payments|
|It refers to the difference between the value of exports and imports of only visible items, during a particular period of time.||It refers to difference between the value of exports and imports of both visible and invisible items, during a particular of time.|
|It is a narrow concept.||It is a broader concept.|
|It may not show the international economic position of an economy.||It shows the international economic position of the country.|
|It gives partial picture of international transactions.||It gives the complete picture of international transactions.|
Differences between Nominal and Real Exchange rates.
|Nominal Exchange rate||Real Exchange rate|
|It is expressed in terms of money.||It is the ratio of foreign prices to domestic prices.|
|It is the amount of domestic currency paid to purchase one unit of foreign currency.||It is expressed in terms of purchasing power of both the currencies.|