Certification in Supplier Diversity Practice Exam

What is a key feature of a closed economy?

1. Free flow of goods and services

2. Severe restrictions on trade with other nations

3. Flexible pricing based on supply and demand

4. High levels of foreign investment

The correct answer is: Severe restrictions on trade with other nations

A key feature of a closed economy is indeed severe restrictions on trade with other nations. In a closed economy, the country operates with minimal or no engagement in international trade, meaning it does not allow for the import or export of goods and services with other countries. This isolationist approach is designed to promote self-sufficiency within the economy and is often enacted through tariffs, quotas, and trade barriers that significantly limit external economic interactions. This fundamental characteristic shapes the way resources are allocated domestically and can impact economic growth, innovation, and consumer choice, as domestic producers become the sole suppliers. In contrast, other options such as free flow of goods and services and high levels of foreign investment are representative of more open economies, where trade and investment across borders are encouraged.