ABSTRACT
The previous chapters analyzed what neoclassicals call a “closed economy”. Rigorously defined, a closed economy model is an analytical system in which all variables arise within the system. It is a completely endogenous system in which the variables are governed by a set of behavioral parameters. Every variable is explained within the system, and there are none “outside” of the system. It is necessary to labor this point because it is not rigorous to define a closed economy as an economy without trade and capital flows, as is frequently done in textbooks.
