The circular flow of funds connects four economic sectors, including households, enterprises, government, and the rest of the world, to three types of markets, primarily factor markets, goods and services markets, and financial markets.

The funding that is received from the four economic sectors is then distributed in the forms of wages, profits, interests, and rent through the factor markets.

• The term stock refers to having a share of ownership of a company that was held by a shareholder.

• The term bond refers to having a loan in the form of an IOU that collects interest.

The income households that receive payments from the factor markets include profits that were distributed to company shareholders and the interest payments or any other associated bonds that might be in possession.

The markets for goods and such goods and service distribution does not often consume all of the allocated profit as households often create a separate distribution plan for it, set aside for their private savings.

• The term private savings refers to an equal amount of money to disposable income that is subtracted from consumer spending and is considered disposable income that is not spent on consumption by the household.

The calculation of the GDP, or the Gross Domestic Product, incorporates three approaches.

• The first approach refers to the term, value-added approach, as it is used to survey films and add all the contributions to the final goods and the services used.

• The second approach refers to the term of expenditure approach as it adds up aggregate spending on domestically produced final goods and services associated with the economy. This includes the sum of consumer spending, investment spending, government purchases of goods, and purchases, and is subtracted by the imports.

• The last approach refers to the term of the income approach as it adds up the total factor of income earned by households in the economy that would include rent, wages, profit, and interest.

In reality, not all final spending is associated with the final product of domestically produced goods and services.

The account of spending money on imported goods must be taken into consideration as it is denoted by the variable IM. Income that is spent on imported goods and not spent on domesticated goods and services can be accidentally leaked across national borders, or even considered to be lost.

The following equation can be used to calculate the GDP by the four sources of aggravated spending.

• GDP = C + I + G + X - IM