A “closed economy” is an economy in which

Answer: (d) neither exports nor imports take place

A closed economy has no economic links with the rest of the world. It does not export, import or trade in assets with other countries. So it has neither exports nor imports. An open economy, by contrast, interacts with other countries through trade and financial channels.

• ✓ (d) With no exports and no imports, the economy has no trade link with other countries. Demand for its output comes only from consumption, investment and government spending (Y = C + I + G).
• ✗ (a) Control of the money supply is a matter of monetary policy. It has nothing to do with whether the economy trades with other countries.
• ✗ (b) Deficit financing means the government meets a budget deficit by borrowing or by creating new money. Both closed and open economies can do this.
• ✗ (c) An economy that exports still has a link with the rest of the world, so it is not closed. A closed economy has no exports either.

Remember · Closed economy: no linkages with the rest of the world, so no exports or imports and Y = C + I + G. Open economy: also has net exports (X − M).

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)

Question: UPSC Civil Services (Preliminary) 2011, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). · Report an error