The Five Sector Circular Flow Model

Identify the 5 sectors in The Five Sector Circular Flow Model:

1. Households

2. Business/Firms

3. Financial

4. Government

5. Overseas

State the Key Features of each sector:

1. Households - Made up of consumers who hold economic resources such as land, labour, capital and enterprise

2. Firms/Business - Firms use resources of households to produce goods and services, known as production

3. Financial - Financial institutions such as banks. They receive the savings of individuals and businesses and then lend this money to others who need to borrow money

4. Government - The government sector refers to local state and federal government. Has two main roles which is taxation and government expenditure

5. Overseas - Overseas sector has imports and exports

Identify THREE leakages in the 5 Sector Flow Model:

1. Savings

2. Taxation

3. Imports

Identify THREE injections int he 5 Sector Flow Model:

1. Investment

2. Government Spending

3. Exports

Use the following information to determine the level of economic growth int he hypothetical economy;

Savings	$100m
Investment	$200m
Taxation	$300m
Imports	$200m
Government Spending	$200m
Exports	$300m
Level of Economic Growth	?

Level of Economic Growth = $100m

Use the following information to determine the level of savings required in the hypothetical economy for it to be in equilibrium;

Savings	?
Investment	$200m
Taxation	$300m
Imports	$200m
Government Spending	$400m
Exports	$300m

Savings = $400m

What is the role of ASIC:

The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth Government body responsible for the regulation of the financial sector. Is main roles are:

• monitoring the financial services industry

• monitoring the provision of financial services such as investment advice

• providing consumer protection in financial services, including shares, managed funds, superannuation, insurance, credit and deposit-taking

Define the term ‘collateral security’

Assets that can be sold to recoup money once the consumer stops being able to pay the repayments on the loan

What is the relationship between interest rates and risk?

The higher the interest rate the higher the risk. If you don’t have security there is nothing to sell to recoup the loan.

What is the banks role in the 5 sector model?

The role of banks in the 5 sector model is to collect savings from households and then lend out money (loans) to businesses. Funnel leakage into economy as form of injection plus make money on the side. Great Summers Bank, gives saver 0.1% on savings they have, lend at a rate of 7%, meaning that the bank makes more money therefore increasing their funds.