An open economy is one in which a country engages in international trade and investment, and allows the free flow of goods, services, and capital across its borders. In an open economy, the exchange rate is determined by the market forces of supply and demand, and the country's economic policies are influenced by global economic conditions.

A closed economy, on the other hand, is one in which a country does not engage in international trade or investment, and does not allow the free flow of goods, services, or capital across its borders. In a closed economy, the exchange rate is typically fixed by the government, and the country's economic policies are not influenced by global economic conditions.

In reality, most economies are not completely open or closed, but rather fall somewhere in between. Many countries have varying degrees of openness depending on their economic policies and the level of integration with the global economy.