The above case assumes an economy with no government and does not participate in foreign trade. However, many countries trade with others and also have governments that actively participate in the economic activities. Thus in such an economy there are 4 actors; Households, firms, government and rest of the world
Other than there being only resource and product markets there are also money markets in the economy. a more elaborate circular flow model would therefore include all these actors and the markets in which they interact as follows.
LeakagesThese refer to any diversion of aggregate income from the domestic spending i.e. a withdrawal from the circular flow. They include; Savings (S), Taxes (T), and Imports (M).
InjectionsThese refer to any payment of income other than by firms or any spending other than by domestic households on an economy. These include; Investments, Government purchases including transfers (G), Exports (X),
Kavungya answered the question on
August 10, 2021 at 06:25