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Circular flow - open with government

How important is the role of government in the economy?

You need to be able to explain every component in the model identifying injections and leakages

In the 3-sector open economy circular flow of income, we could also represent the government separately in this circular flow - here's an alternative representation of the 3-sector open economy circular flow. It shows exactly the same flows, but represents them a little differently.

c_flow3

Figure 1 Circular flow - 3 sector, open economy

In this diagram, why a big box in the middle for government? Just how big a player do you think the government is in the economy?


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Useful Internet sites for research are:

  1. Identify the proportion of national income represented by government expenditure in your country.
  2. Identify the proportion of national income taken up by government spending for the following countries
    1. USA
    2. Tanzania
    3. Sweden
    4. Cuba
    5. Hong Kong
  3. Considerthe differences in the proportion of national income represented by government spending in the countries above and with your country.
  4. Reflect on the reasons for these differences and remember these findings as you work your way through the macroeconomics pack.