Five Sector Circular Flow of Income
The five sector notice accrue of income shows the distribution of income within the economy. It has five main subsidiaries or contributors, including individuals, businesses, financial institutions, the government and international trade and financial flow. individu every last(predicate)y of these sectors contribute to either the leakages or injections (or both) of the circular flow of income.
Individuals, refers to every(prenominal) members of the economy, regardless of employment or financial status. They are implicated with the activities of earning an income and spending on goods and services. They are consumers, as well as the owners of productive resources. This means individuals supply factors of production such as labour and enterprise, and for this they are rewarded by businesses with wages, rent, royalties and other forms of income. This income is then played out on loc exclusivelyy manufactured goods and services, imports, taxes and nest egg.
The business sector accepts all business firms involved in the production of goods and services. It does not include financial services. Businesses deal with all activities involved in get factors of production and using them to produce goods and services. They depend on individuals for both the supply of resources needed for production and the consumption of goods and services produced. Individuals expect businesses to provide goods and services and income. This interdependence is essential to the circular flow of income.
Businesses form the private sector of our economy.
The financial institutions sect relates to all institutions involved in borrowing and lending money. They are the normal between borrowers and lenders of money. Some financial institutions include banks, building societies, spiritedness insurance companies and Superannuation. They are needed by establishments and firms to undertake savings and investiture. Financial Intermediariefs accept deposits or savings from individuals and lend to businesses for investment purposes, thereby mobilising savings.
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