Econ 224 - Open and Closed Systems

Open and Closed Systems

Danielle Sposeto

ECON224

American Intercontinental University

June 23, 2013

Stephen Opalat

Abstract

This paper will talk about open and closed systems in our economy. I also will talk about leakages and injections in the system.

The first system I'm going to talk about is the closed system; this does not have any interaction with other countries. So, this means they're self-reliant country, they have no export or import of goods and services, and this is the term "closed". With the lack of trade from other countries can result in isolation, the cost of transit, and the decision by the government or cultural preference (Closed Economy, 2012).

In our economy there are not many countries that have a closed economy, North Korea might be the closet one to having a closed economy but they are still open to foreign trade and investments. There are only a few selective countries such as Singapore, India, South Korea, and China, have stress their economy that is self-sufficient.

The other system is the open system. This system is opposite from the closed system. The U.S. and most other countries have open systems where they import and export goods to and from foreign countries. In our text as "an economic model that counts the goods and services exchanged domestically and between nations" (Editorial Board, 2011).

In the open and closed system the customer can enter the goods market, and buy whatever they want or need from the businesses or producers. The businesses need workers and buildings to produce their goods so that they can enter the factor market. This is where groups and individuals can sell their products for money (Buildings, ect.). This is income for the individuals. This money creates a circular flow in each system (Editorial Board, 2011).

The outer flow in a closed system starts with a customer spending money on goods and/or services from the business. Then the business takes the money and uses it to pay for factors of production, like rent and wages; what this does gives the money back to the customers, and starts the process over again. The businesses inner flow sells their products and services to the customers, which the money is then used for expenses (capitol, labor, and land) that goes to the business and they use the money to produce more goods and/or services. That creates a constant flow of money.

With the open system, like the U.S. the money slow has the same manner but the government