Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What type of economy does not allow foreign trade?

1. Open economy

2. Mixed economy

3. Closed economy

4. Market economy

The correct answer is: Closed economy

A closed economy is characterized by its lack of engagement in foreign trade. In this type of economy, all economic activities and exchanges are conducted within the domestic borders, and there are no imports or exports. The closed economy mindset prioritizes self-sufficiency, expecting to fulfill all of its needs through local production and consumption. This can limit innovation and access to a broader range of goods and services that could benefit consumers. In contrast, an open economy actively participates in international trade, a mixed economy combines elements of both private and public sector influences, and a market economy primarily relies on supply and demand to allocate resources, typically without restrictions on foreign trade. Thus, identifying the correct answer as a closed economy highlights its defining feature of non-engagement in international commercial activities.