An open economy is said to be one that trades with other nations in goods and services and, most often, also in:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → financial assets
An open economy is linked to other countries through trade in goods and services. Most often it also buys and sells financial assets abroad.
Movement of labour is the third link, but laws restrict it, so the main links are goods and financial assets.
NCERT (2026-27): “… There are three ways in which these linkages are established. 1. Output Market: An economy can trade in goods and services with other countries. This widens choice in the sense that consumers and producers can choose between domestic and foreign goods. 2. Financial Market: Most often an economy can buy financial assets from other countries. This gives investors the opportunity to choose between domestic and foreign assets. 3. Labour Market: Firms can choose where to locate production and workers to choose where to work. There are various immigration laws which restrict the movement of labour between countries. Movement of goods has traditionally been seen as a substitute for the movement of labour. We focus on the first two linkages. Thus, an open economy is said to be one that trades with other nations in goods and services and most often, also in financial assets.” |