What characterizes an open economy?

An open economy is characterized by its engagement in international trade, which includes both importing and exporting goods and services. This means that a country in an open economy actively participates in the global market, allowing it to benefit from trade agreements, access to foreign markets, and increased competition. By engaging in international trade, an open economy can enhance economic growth, improve resource allocation, and provide consumers with a wider range of products and services at competitive prices.

This engagement fosters interdependence on other economies and allows for the exchange of goods that may not be readily available domestically, thus enriching the economy overall. The emphasis on international trade distinguishes an open economy from those that focus solely on domestic markets, restrict trade, or rely exclusively on natural resources.