Name : Fadhilah Regina Aurel Danessa

NIM : 01031281924197

Major : Accounting’19

Type of Economic Activities Models In The Comunity

Economic activities in society can be macro divided into three models, which are
the model of economic activitytwo sectors, the three sector economic activity model,
and the modelfour sectors of economic activity (economic modelopen). Each
economic model consists ofseveral macroeconomic indicators / quantitiesrelated to
one another

In more detailed models of economic activity in the above can be described as

follows:

1.Two Sector Economic Model

This economy considers a simple prototype economy which does not have a
government and does not trade with other countries. The only transactions in this
economy are:

a)    Households

b)    Firms

Functions of Household:

i.              Factors of production

ii.             Consumption Spending

Functions of Firms:
i.              Production of goods and services

ii.             Payments of factors

Any profit earned by the firms is redistributed to the households. The households are
assumed to spend all income on the consumed goods and services produced by the
firms

Flow Chart of Two –Sector Economy:

Transaction in two-sector economy is shown the flow chart. The cart shows that the
expenses made by the household become the source of income for the business sector
or the firms. Firms provide payments to the factors owners (landlord, labor, investors
and entrepreneur) for producing factors of production. Further the factor owner
spends this income on buying goods and services produced by the business sector,
which becomes revenue for the business sector.
2. Three Sector Economic Model

The three-sector economy involves three sectors namely, households, business,

and government. The addition of the government in an economy results in bringing
two variables in an economy. These variables are government expenditure (act as
injections to income) and taxation (act as leakage or withdrawals from income). In
other words, the government expenditure increases the aggregate demand, while
taxation reduces the aggregate demand.

Flow chart three-sector economic

Firstly household sector pays income tax and commodity tax to the government, On
the other hand, government also makes transfer payments to the household sector.

Income and expenditure flow between government sectors is similar. Business firms
pay taxes to the government, the government on the other hand pays subsidies and
makes transfer payment, and pays from goods and services it purchases from the
business sector.

Taxes paid by the household and business sector are the leakages form the circular
flow. This decreases not only the consumption savings of the household sector but
also decreases investment and production of business sector.

3. Four Sector Economic Model

The circular flow model in four sector economy provides a realistic picture of the
circular flow in an economy. The four sector economy comprises of household, firms,
goverment, foreign sector.

Here, there are two important components:

a. Export: Export is referring to as an injection into the circular flow that consists of
payment receives for goods and services sold to the rest of the world.

b. Import: Import is referred to as a leakage from the circular flow that consists of
payments made for goods and services purchased from the rest of the world.

When firms exports goods and services to the foreign markets, injections are made
into the model. On the other hand, when household, firm or government imports any
goods and services from foreign sector, leakage occur in the model. In this model,
each sector has dual roles to play in the economy; while one sector receives certain
payments from other sectors, it pays back to those sectors as well.
Household Sector
a.    Receipts:
1.    Factor income from business sector
2.    Transfer payments from government sector
b.    Payments:
1.    To the business sector in the form of consumption expenditure
2.    To the government in the form of taxes
3.    To the capital market in the form of saving

Business Sector
a.    Receipts:
1.   Income from selling goods and services
2.   Income from exports
3.   Subsidies from government
4.   Borrowing from capital market
b.    Payments:
1.    Factor payments
 2.    Import payments
3.    savings

Government Sector
a.    Receipts:
1.    Taxes paid by household and business sector
2.    Interest and dividends from investment
b.    Payments:
1.    Business sector for purchasing goods and services
2.    Transfer payments to household
3.    Surplus to capital market

Foreign Sector
a.    Receipts:
1.    Income from business sector
b.    Payments:
1. To business sector from where import has been made