5 Sector Circular Flow

Question 1

How Is the Closed Economy Different

Answer 1

there is no overseas sector (no exports or imports), so the model only includes households, businesses, the financial sector, and the government sector.

Question 2

How is an open economy different

Answer 2

all five sectors are included, representing the reality of most modern economies.

Question 3

What are leakages

Answer 3

(S, T, M) represent income that is not directly spent back into the circular flow.

Question 4

Injections

Answer 4

Injections (I, G, X) represent spending that is not directly funded by household income.

Question 5

What is the Financial sector

Answer 5

Sector acts as an intermediary, channeling savings into investment. The government sector injects funds through spending and withdraws funds through taxation. The overseas sector injects funds through payments for exports and withdraws funds through payments for imports.

Question 6

How is the resource market important

Answer 6

connects households (as suppliers of factors) to businesses (as demanders of factors), with income flowing to households in the form of rent, wages, interest, and profit.

Question 7

How is the goods market important

Answer 7

The goods market connects businesses (as suppliers of goods and services) to households, the government, and the overseas sector (as demanders), with expenditure flowing to businesses.