Circular flow

Electrical Circuit
Probably won't use this slide
Five sector Circular Flow model of Income
 Two sector Circular Flow model of Income

Income = wages
Resources = labour
Output = bread, cupcakes etc.
expenditure is cost paid to business for bread etc.
 Expenditure
Income (buying the
(wages) good/service)
 Expenditure
Income (buying the
(wages) good/service)
 Expenditure
Income (buying the
(wages) good/service)
 Expenditure
Income (buying the
(wages) good/service)
 Circular Flow

Income Expenditure
(wages) (buying the
good/service)
Definitions - Sectors
Firm
A business that sells goods or services to make a profit.
Household
All persons who live in a housing unit.
Financial Sector
firms that provide financial services
Eg banks, investment funds, insurance companies etc.
Government Sector
The government
Local, State and Federal.
International Sector
All other international transactions.
Imports and Exports
Includes changing of currency
Examples - Leakages
Savings
Put money in the
bank
Taxes

Imports
Examples - Injections
Investment
In economics, investment means creation of capital or goods capable of
producing other goods or services.
Shares
E.g. Mining company
Loans
Businesses
Real Estate
Government

Export
Question?
Questions for you
What are 3 possible leakages in the Circular Flow of Income?
Savings, Taxation, Imports
Explain Investment.
Financial sector (banks etc.)
What does the Government Sector do in the Circular Flow?