An open economy is an economy in which there are economic activities between the domestic

community and outside. Participants are permitted to buy and sell goods and services with other
countries. People and even businesses can trade in goods and services with other people and
businesses in the international community, and funds can flow as investments across the
border.
A free market is an idealized system in which the prices for goods and services are determined
by the open market and by consumers. In a free market the laws and forces of supply and
demand are free from any intervention by a government, by a price-setting monopoly, or by
other authority.
Free market refers to an economy where the government imposes few or no restrictions and
regulations on buyers and sellers. In a free market, participants determine what products are
produced, how, when and where they are made, to whom they are offered, and at what price—
all based on supply and demand.

Laissez-faire is an economic system in which transactions between private parties are free
from government intervention such as regulation, privileges, tariffs and subsidies. The principle
behind that, is that the less the government is involved in the economy, the better off business
will be-–and by extension, society as a whole. Laissez-faire economics are a key part of free
market capitalism.

Too much freedom in economic activities won’t be good for the nation, thus governments may
also intervene in markets to promote general economic fairness. Maximizing social welfare is
one of the most common and best understood reasons for government intervention.
Governments may sometimes intervene in markets to promote other goals, such as national
unity and advancement.

The current account is a country's trade balance plus net income and direct payments. The
trade balance is a country's imports and exports of goods and services. The current account
also measures international transfers of capital. In other words, current account is an important
indicator of an economy's health. It is defined as the sum of the balance of trade (goods and
services exports minus imports), net income from abroad, and net current transfers.

A budget surplus is a period when income or receipts exceed outlays or expenditures. A

budget surplus is simply having more income than expenses during a specific period of time,
such as a financial quarter or fiscal year. It can be said that If income exceeds spending, the
government has a budget or fiscal surplus.
Leakage describes capital, or income, which exits an economy or system rather than remaining
within it. In economics, leakage refers to outflow from a circular flow of income model. 

A leakage in economy is expenditure which does not stay in the economy or does not end up
as income for firms in the economy. Leakages are expenditure for imports (because the
expenditure flowd abroad), taxes (because the expenditure does not end up as income for
firms) and savings (because the expenditure does not end up as income for firms).

Economic openness, in political economy, the degree to which nondomestic transactions

(imports and exports) take place and affect the size and growth of a national economy.
The degree of openness is measured by the actual size of registered imports and exports
within a national economy, also known as the Impex rate.

To calculate the nominal exchange rate, simply measure how much of one currency is necessary

to acquire one unit of another. While the nominal exchange rate tells how much foreign currency can
be exchanged for a unit of domestic currency, the real exchange rate tells how much the goods and
services in the domestic country can be exchanged for the goods and services in a foreign country.

The real exchange rate is the nominal exchange rate times the relative prices of a market basket of
goods in the two countries. The real exchange rate represents the nominal exchange rate adjusted
by the relative price of domestic and foreign goods and services, thus reflecting the competitiveness
of a country with respect to the rest of the world.

The nominal exchange rate is the rate at which currency can be exchanged. Thus, we
determine the nominal exchange rate by identifying the amount of foreign currency that can be
purchased for one unit of domestic currency.
The real exchange rate tells how much the goods and services in the domestic country can be
exchanged for the goods and services in a foreign country. The real exchange rate is
represented by the following equation: real exchange rate = (nominal exchange rate X domestic
price) / (foreign price)..