What defines a closed economy?

A closed economy is defined by its complete absence of international trade, meaning it does not engage in buying or selling goods and services across its borders. This model operates independently, relying entirely on domestic production to meet the needs of its population. The concept emphasizes self-sufficiency, where all resources, labor, and goods are sourced internally without any interaction with external markets.

In contrast, an open economy would involve active international trade, where goods and services flow freely across borders, which is not characteristic of a closed economy. Similarly, while limited trading with select countries and relying heavily on imports and exports suggest some degree of interaction with the global market, neither aligns with the fundamental principle of a closed economy that does not allow for any external economic influence.