Circular flow essay grade 10

Circular Flow of Economic Activity (Four Sector Model ) Introduction To analyze an economy as a whole economists developed different models. The significance of these economic models enable us to understand the economic activities more vividly. For this purpose an economy can be classified in to four major sector.

Financial market invests money by lending out money to households, firms and the government. The inflows of money in the financial market are equal to outflows of money. It makes the circular flow of income complete and continuous.

Circular Flow Model Essay ...The circular flow model reflects the flow of money, goods and services throughout the economy. This model is composed of households and business firms and it divides the markets into two categories, Product Market and Factor Market.

The circular flow shows that some part of household income will be put aside for future spending, for example, savings (S) in banks accounts and other types of deposit, paid to the government in taxation (T) e.g. income tax and national insurance and spent on foreign-made goods and services, i.e. imports (M) which flow into the economy.