Open Economy

Open Economy is one that engages in international exchange of goods, services, and investments. It is mostly free from trade barriers and where exports and imports form a large percentage of the GDP. It is operating with flexible exchange rates can use monetary policy for macroeconomic stabilization which operates independently of other countries. Degree of openness of an economy determines a government’s freedom to pursue economic policies of its choice, and the susceptibility of the country to international economic cycles.