circular flow

Circular Flow Model

A simplified diagram showing how the economy works

Closed Economy

An economy that does not trade

Consumption Spending

Spending by households on goods and services

Export Receipts

Income from selling products to foreigners

Financial Institutions

Made up of banks and financial institutions

Firms Sector

All producers

Foreign Exchange Market

A place or situation where the $NZ can be exchanged for other currencies

Goods and Services Market

A place or situation where goods and services are bought

Government Sector

Collects taxes and spends them on collective goods

Household Sector

Made up of individual consumers and their families

Import Payments

Payments to foreigners for their goods and services

Incomes

Reward paid for the use of resources

Interest

The reward to savers and the price that borrowers must pay

Investment

Buying capital goods

Money Flows

Incomes and spending circulating in the economy

Open Economy

An economy that trades with other countries

Overseas Sector

A place or situation where imports and exports can be bought and sold

Real Flows

Resources and goods and services

Resource Market

A place or situation where income can be exchanged for land, labour, capital and entrepreneurship

Savings

Income not spent

Subsidy

A payment to firms by the government to reduce costs of production

Transfer Payments

Benefits paid to retired people and the unemployed