Circular Flow Model

Sector 1

Household Sector - Contributes to the economy through work (labour) and buying goods and services.

Sector 2

Business Sector - Produces the goods & services to be consumed.

Sector 3

Financial Sector - Includes banks & institutions that provide cash flow through lending services.

Sector 4

Government Sector - Collects money through taxation and uses it for Government Spending (G) and public goods and services (e.g. hospitals, roads, schools).

Sector 5

Overseas Sector - Brings in money from international buyers; Imports & Exports

Flow 1

Flow of productive natural, capital, and labour resources supplied.

Flow 2

Flow of incomes to owners selling resources.

Flow 3

Flow of total spending on total Australian production - Aggregate Demand: C + I + G + (X - M)

Flow 4

Flow of final goods and services supplied produced (e.g. GDP)

Leakages

S + T + M = Slows AD

Injections

I + G + X = Boosts AD