Which of the following is an example of a closed economy?

• A. An economy that has a floating exchange rate
• B. An economy that exports more goods than it imports
• C. An economy that does not engage in international trade or financial transactions with other countries
• D. An economy that relies heavily on foreign investment

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of a closed economy. A closed economy is one that does not engage in international trade or financial transactions with other countries, meaning it neither imports nor exports goods and services.
2. Step 2: Analyze each option in the problem to see if it fits the definition of a closed economy.
3. Step 3: The option 'An economy that has a floating exchange rate' refers to how the currency value is determined and does not imply anything about trade openness, so it is not necessarily a closed economy.
4. Step 4: The option 'An economy that exports more goods than it imports' clearly involves international trade, so it is an open economy, not closed.
5. Step 5: The option 'An economy that relies heavily on foreign investment' also involves financial transactions with other countries, so it is not closed. Therefore, the correct example of a closed economy is the one that does not engage in international trade or financial transactions.