Closed economy

In macroeconomics, a closed economy is understood to be a theoretical economy that does not exchange goods and services with other economies. Autarky prevails in these model considerations . The closed economy is only to be understood as an extreme assumption and theoretical modeling of an economy. In the empirical world, there is no completely closed economy. For reasons of economic theory, the concept of the closed economy is of great importance: The model of a closed economy serves the basic understanding of the interrelationships of the individual economic subjects private households, companies and the state and defines the national income. Much of the knowledge gained from analyzing closed economies can be extended to more complicated models. An open economy stands in the way of a closed economy .

Theoretical foundations

Overall economic demand (national income) is defined by the sum of private consumption, investments (by companies) and government spending. The total economic saving is equal to the total economic investment.

The identity equation

{\ displaystyle Y = C + I + G + (Ex-Im) \! \}

so can be shortened to

{\ displaystyle Y = C + I + G \! \}

because in a closed economy, exports and imports are zero: . ${\ displaystyle Ex = 0, \ quad Im = 0}$

There

{\ displaystyle S = YCG \! \}

results from this in a closed economy

{\ displaystyle I = S \! \}

${\ displaystyle Y}$ : Domestic product , national income
${\ displaystyle C}$ : Consumer demand
${\ displaystyle I}$ : Investments
${\ displaystyle S}$ : Macroeconomic savings
${\ displaystyle G}$ : Government spending
${\ displaystyle Ex}$ : Exports
${\ displaystyle Im}$ : Imports

If the entire world is understood as a common economy, as is the practice for calculating world economic growth, then there is inevitably a genuinely closed economy.