Closed And Open macro-economy Systems
American Intercontinental University- Online
In today’s business world it is important to understand the difference between an open and closed Macroeconomic system. Each time you go out to purchase a good or service you need to be aware of how your hard earned money is being distributed across the economic system. There are two types of systems that I will discuss an open system and a closed system. Closed System:
In a closed system the money is caught up in a circular flow and is considered to be a closed system. When looking at the closed system you will notice right off that only the domestic exchanges are counted and the foreign agents are not counted within the closed system. In a closed system there should not be any leaks due to the fact that there are no foreign agents, government, or a system of savings or investments. Furthermore in a closed system there are no taxes, savings, or import expenditures that are not returned to the economy. When look at examples of a closed economy you don’t have to look very far to find a good example is the Amish they produce all of what they need and only do business within their community there is no form of savings or taxes within the economic system. The goods and services are made of home grown materials and there is no imported materials used within the closed system. This is a very small system but a good example of the closed system at work. The inner flow in a closed system functions in the following way. Goods and services are delivered from the factories to the consumer and the land labor and capital is provided by the consumers to the factories. The outer flow in a closed system functions in the following way. Consumers provide the money to the factories and the factories provide the wages and rentals to the consumer. Open system:
In an open economic system the good and services are...
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