For which analysis can a closed economy assumption be useful?
Answer and explanation
Correct answer: To understand domestic income flow by excluding the foreign sector
A closed economy assumption excludes international transactions, so exports and imports are omitted from the initial model. This allows students to focus on domestic production, income, consumption, saving and investment, particularly in a two-sector or domestic circular-flow framework. It does not mean that the economy has no activity; it simply isolates domestic relationships for analysis. Hence, A is correct.
Frequently asked questions
What is the correct answer to this question?
To understand domestic income flow by excluding the foreign sector
Why is this the correct answer?
A closed economy assumption excludes international transactions, so exports and imports are omitted from the initial model. This allows students to focus on domestic production, income, consumption, saving and investment, particularly in a two-sector or domestic circular-flow framework. It does not mean that the economy has no activity; it simply isolates domestic relationships for analysis. Hence, A is correct.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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