Circular Flow Model A

Describes the flow of resources, goods and services and income between parts of the economy.

All individuals in the economy that provide firms with productive resources in exchange for income.

Consists of all private business enterprises in the economy which produce and distribute goods and services to consumers.

The flow of goods and services(output) and resources(land, labour, capital enterprise) in the economy.

The flow of spending(consumption expenditure) and income(rent, wages, interest, profits).

Firms hire resources from households and in return households receive income.

Shows how households spend their income on the goods and services produced by the firms.

Consists of financial institutions who act as the intermediary or middleman between savers and investors. They attract funds from savers by offering interest and make loans to firms.

The portion of income not spent on goods and services for current consumption. Households deposit their surplus funds into financial institutions. (Leakage)

Is both a consumer and producer. The government consumes goods and services such as education, health, and defense. The government buys productive resources from households and firms.

The government sector raises money through income tax, profits from firms and certain types of consumption expenditure. (Leakage)