Which statement best describes an open economy?

An open economy is characterized by its engagement in international trade and financial transactions, allowing for the free exchange of goods, services, and capital across borders. This concept reflects the dynamics of global commerce, where countries interact with one another economically, enabling a variety of benefits such as enhanced efficiency, access to a wider array of products, and the potential for economic growth.

The engagement in international trade means that an open economy does not merely focus on domestic resources but actively participates in the global marketplace, facilitating imports and exports. This connectivity leads to competitive advantages and the sharing of technology and innovation between nations.

The other statements describe scenarios that do not align with the principles of an open economy. For instance, suggesting a lack of international trading activities or complete isolation from global markets implies a closed economy, which restricts interaction and limits market potential. Likewise, the notion that only imports are permitted contradicts the characteristic of trade that involves reciprocity through exports, as both components are crucial in defining an open economy.