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

? Final Paper Affiliation with more information about affiliation, research grants, conflict of interest and how to contact Define and explain a closed system and provides an example A closed economy is the opposite of an open economy. In a closed economic country, 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. China was a closed economy earlier and then transformed into an open economy when they understood the benefits that come along with being an open economy. “Brazil remains one of the most closed economies in the world” (Opinion Brazil’s “Closed Economy” has to Change and Mature, 2010, para.2). Define and explain an open system and provide an example. The contradictory counterpart of a closed economy is the open economy. In an open economy, goods and services of a country flow in international terms. In an open economic system, countries are engaged in foreign trade, that is, they export goods to others countries as well as import goods and services from them. Open economy, from the name itself suggests that it is open and this means free flow of goods and services into and out of the economic boundary of the country. India is a good example for an open economy. Explain the inner and outer flows of a closed system In a closed economy there is no import and export. The manufacturing, marketing as well as consumption take place within the bounds of the country. The country engages in utilizing its own factors of production such as land, labor and capital. Since there is no exchange of goods and services, a closed economy does not have any inner or outer flows. Explain the inner and outer flows of an open system The main features of an open economic 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 financial system. In a perfect financial system, the leakages must match the injections. However, in the present financial system, leakages are more important than injections in both government as well as foreign interactions. Provide a personal example of a leakage describe it and explain it “The leakage occur due to the industry import both consumption and resource from other country to support the growth of its own industry” (Economic Leakage of Tourism Industry in Cambodia, 2008, para.2). One of the most presently debated industries that contracts out its production and labor of products is Apple Inc. Apple is presently enduring in rigorous study due to poor working conditions provided to their employees in foreign countries. These work situations were situating into place in foreign areas where the minimum wage and safety regulations were miniscule. It is hard for Americans to obtain these jobs back for the reason that the Chinese will all the time underbid the US worker. Provide a personal example of an injection describe it and explain it 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 US. Reference List Economic Leakage of Tourism Industry in Cambodia. (2008). Work Press. com. Retrieved from < http://nearshoreamericas.com/brazil-closed-economy-matur/ > Opinion Brazil’s “Closed Economy” has to Change and Mature. (2010). Near shore Americas. Retrieved from < http://nearshoreamericas.com/brazil-closed-economy-matur/ > The Mechanics of Open and Closed System. (2012). Business Pointers. Retrieved from Read More