Circular flow - two sector open (Government and International Trade)
If you would prefer to view this interaction in a new web window, then please follow the link below:
You need to be able to:
Explain, 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).
Explain 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