Macroeconomics: Economics and Editorial Board

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Unit 2
Individual Project 2
ECON224-1204A-03 Macroeconomics
Dr. Leo
Lina Casper
Aug. 31, 2012

This paper is about the open and closed systems of economics. It will give examples of my own and out of the book as required. It also tries to explain the differences between the two systems. So without further ado let’s get started.

A closed system is an economic model that counts only domestic exchanges but not foreign agents (Editorial Board). I believe that a good example of a closed system would be a person buying wood for the winter. He buys from another local person and you have a closed circle and therefore a closed system. Each person is local and spending their money locally.

An open system is an economic model that counts the goods and services exchanged domestically and between nations (Editorial Board). I believe that a good example of an open system would be any major grocery chain. They buy fruit and vegetables from foreign countries and sell them in domestic markets. A local market has brought in something, fruit and vegetables, from outside the circle, so now the circle is broken and is an open system.

The inner flow of a closed system goes from consumer to producer and back again. The producer puts out goods that the consumer buys and the monies go back to the producer for capital goods which in turn help the producer, produce the goods that the consumer buys. The outer circle also goes from consumer to producer and back again, but for different reasons. The producer pays the consumer wages and rents and the consumer pays the producer monies for their product, only this money goes into profit because bills have already been paid, by the inner circle.

In an open system all of the above is true but there is much more to it. There are leaks and injections. The leaks are in part in the form of the taxes that EVERYBODY pays. The consumer and the producer both pay taxes that are money that nobody really profits from. There are also leaks in...
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