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Circular flow - two sector open (Government and International Trade)

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You need to be able to:

using a diagram, the circular flow of income in an open economy with government and financial markets, referring to

  • leakages/withdrawals (savings, taxes and import expenditure)

  • injections (investment, government expenditure and export revenue).

how the size of the circular flow will change depending on the relative size of injections and leakages.

NB: In equlibrium Injections equal Withdrawals

If Injections are greater than Withdrawals the Economy (Flow) will increase

If Injections are smaller than Withdrawals the Economy (Flow) will decrease