UPSC Prelims 2011 · Question 87 of 100
UPSC Prelims 2011 question on Closed Economy
- ExamUPSC CSE
- Year2011
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicEconomic Growth
- DifficultyEasy
- TypeDirect
A “closed economy” is an economy in which
Show answer
Answer: D. Neither exports nor imports take place
Verdict
Correct Answer: Neither exports nor imports take place
Analysis
A closed economy is an economy that has no trade or financial interaction with the rest of the world. It is based on self-sufficiency.
1. Money supply is fully controlled — Incorrect
Control over money supply is done by the central bank.
This can happen in both open and closed economies, so it is not the defining feature of a closed economy.
2. Deficit financing takes place — Incorrect
Deficit financing means government expenditure exceeds government revenue.
It can occur in both open and closed economies.
3. Only exports take place — Incorrect
A closed economy does not engage in foreign trade.
If exports take place, the economy is no longer closed.
4. Neither exports nor imports take place — Correct
In a closed economy, there is no international trade.
Both exports and imports are absent, and the economy depends on domestic production and consumption.
Extra UPSC info
* A closed economy is also called an autarkic economy.
* In a closed economy, national income is written as Y = C + I + G.
* In an open economy, national income is Y = C + I + G + (X - M).
* X means exports and M means imports.
* No modern economy is completely closed in practice.
* India before 1991 was relatively closed due to high tariffs, import controls and the Licence Raj.
How to crack it
A closed economy is one in which neither exports nor imports take place.