circular flow model

circular flow model

helps us understand how money moves within an economy

household sector

consists of workers & consumers

business sector

consists of producers and supplier of income for workers

production costs - labor, material, etc

government sectors

injects money into the circle thru ___ spending, ex. building of public infrastructure using taxes (from households and firms)

foreign sector

injects money in circle thru exports & imports (international buyers)

financial sector

connects to all other sector thru borrowing & investing of money

open economy

type of economy with the inclusion of other countries

injection

funds flowing into the economy

ex investments, money on exports

leakage

funds leaking out of the economy

ex. household savings, money on imports

subsidies

financial aid from the govt

transfer payment

govt gives you money expecting nothing in return