The Major Difference Between an Open Economy and a Closed

question 64

Multiple Choice

The major difference between an open economy and a closed economy is that:

• A)an open economy interacts with the rest of the world, a closed economy does not.
• B)a closed economy uses rules rather than discretionary policy, an open economy uses discretionary policy.
• C)an open economy is a market economy while a closed economy relies on central planning.
• D)a closed economy balances budgets, an open economy does not.

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Definitions:

Accounting Rate of Return

A financial metric used to assess the profitability and potential return of an investment or project, based on the average annual profit compared to the initial investment cost.

Time Value

The concept that money available today is worth more than the same amount in the future due to its earning potential.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Payback Period

The length of time required to recover the cost of an investment or determine how long it takes for an asset to generate enough cash flow to cover its original cost.