Open economy theory

Open economy theory examines how countries interact through trade, investment, and financial flows. It explains how a nation’s economic performance is influenced not only by its internal factors but also by its exchanges with the rest of the world. Key concepts include exports and imports, exchange rates, and capital movement. The theory helps understand how global integration affects a country's growth, inflation, and employment, highlighting the interconnectedness of economies. It underscores the importance of policies that consider both domestic conditions and international relationships to foster stable and sustainable economic development.