Circular Flow Model Essay - 1266 Words.

An open economy circular flow model illustrates the economic interaction between the four participants. Describe this interaction in detail with the aid of a diagram, which includes injections and withdrawals. (35) (This question is only part of an essay question that counts 50) QUESTION 3: 13 minutes (Taken from DoE Nov 2010) 3.1 Explain.

Circular Flow Model Essay.The circular flow of income model is a theoretical representation of the economy. It shows the distribution of income within the economy and the interaction between the different sectors in a modern market economy.

The Circular Flow in a Three-Sector Economy: So far we have been working on the circular flow of a two-sector model of an economy. To this we add the government sector so as to make it a three-sector closed model of circular flow of economic activity. For this, we add taxes and government purchases (or expenditure) in our presentation.

Five-Sector Flow of Income Model. The five sector circular flow of income model describes the operation of an economy and the links between the major sectors in the economy. The circular flow of income model often features five sectors. A sector is a part of the economy where the participants are engaged in a similar type of economic activity.

The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.

The circular flow model of an economy is very useful within the study of economics. We will be looking at the actions and behaviour of firms and households, and how governments interact with them. We will also look at how changes in the leakages and injections affect the stability of an economy.

The final sector in the circular flow of income model is the overseas sector which transforms the model from a closed economy to an open economy. The main leakage from this sector are imports (M), which represent spending by residents into the rest of the world.

The Circular Flow of National Income (Explained With Diagram) Article. circular flow of income does not continue at a steady level in a free-enterprise capitalist economy unless certain corrective and preventive steps are taken by the government to maintain stability in the economy.. From the circular flows that occur in the open economy.

Macroeconomics Essay .Running Head: Macroeconomics Jaque Mcilwain August 9, 2012 Morales Macroeconomics Class Thursday 6pm Abstract I will be discussing the two types of circular flow diagrams: One that represents the flows in the macro-economy as closed system and one that represents the flow as an open system.

The five-sector circular flow model represents an open economy like Australia’s, and demonstrates the important relationships between the different sectors in the Australian market economy. It is the last circular flow model because it does not have any assumptions that need to be left out such as governments and trade.

The circular flow model of an open economy shows the workings of an economy that is open to foreign trade. South Africa has an open economy because we trade with other countries. 1.1 Participants The flows of production, income and expenditure are influenced by four participants: households.

Because of the popularity of the small open economy model, it is often said that, the interest rates in a small open economy are determined by the world markets. The world interest rate is determined in another way, and often economists choose to model this through an equilibrium between world interest and world savings. See also. Exchange rate.