Which of the following is true about open economies?

A. They are involved in international trade.

B. These economics have liberal trade policy

C. They allow free transit

D. They don't have any  trade policy

E. They allow free flow of capital

Choose the correct answer from the options given below :

A, B and E only

The correct answer is option (3) : A, B and E only

A. They are involved in international trade: An open economy actively engages in international trade, importing goods and services that it does not produce efficiently and exporting those that it does. This participation helps in maximizing economic efficiency and benefiting from comparative advantage.

B. These economies have liberal trade policy: Open economies generally adopt liberal trade policies that reduce barriers to international trade. These policies include lower tariffs, fewer trade restrictions, and agreements that promote free trade zones or customs unions. Liberal trade policies encourage economic growth through increased competition, specialization, and efficiency gains.

E. They allow free flow of capital: Open economies facilitate the free flow of capital across borders. This includes investments in foreign assets, foreign direct investments (FDI), portfolio investments, and borrowing from international financial markets. Free flow of capital allows countries to attract investment, access funding for development, and diversify risks.

The other options were not correct:

• C. They allow free transit: This option is not associated with the concept of an open economy. "Free transit" typically refers to the movement of goods or people through a specific area or country without hindrance, which is different from the broader economic concept of an open economy.

• D. They don't have any trade policy: This is not true as all economies, whether open or closed, have trade policies that regulate their international trade activities. Open economies specifically have policies designed to promote and regulate international trade in a way that benefits their economic growth and development.