What characterizes a closed economy?

A closed economy is characterized by self-sufficiency, meaning it does not engage in imports or exports with other nations. In such an economic system, all goods and services consumed are produced domestically, which allows the economy to operate independently of external markets. This model is often used in theoretical economic discussions to illustrate how economies function without the influence of international trade, focusing solely on internal resources and production capabilities.

In contrast, an economy with high levels of exports and imports, or one that actively engages in trade with multiple outside countries, would not be classified as closed. Such systems depend on international markets and global supply chains, thereby contrasting sharply with the concept of a closed economy. Reliance on foreign goods and services also highlights an open economic system where international trade plays a significant role in satisfying domestic needs.