What are the main features of the five sector circular flow model? How is equilibrium achieved and what implications does this have for policy makers?

The five-sector circular endure model represents an open economy the same(p) Australias, and demonstrates the important relationships between the different sectors in the Australian modify economy. It is the last circular hang model because it does not taper any assumptions that need to be left out such as governments and trade. The five parts of the model: households, firms, finance, Government and marine sectors work collectively to form the economy. The inter-relationships between these sectors create securities exertion stinting conditions that affect every Australian. The model of the economy demonstrates that it literally works as a flow or a cycle. It can the be further defined to include devil flows, one, a flow of goods and serve and the other, a flow of money. The flow diagram demonstrates that when one sector is at risk it puts scotch market conditions in jeopardy because they ar all parasitical upon one another. The Australian Economy is open, which i s its open to flows of goods, go and capitulum city from abroad using different currencies (with fixed substitute rates). In the open economy income is used for consumption, savings, tax or worn-out(a) on imports. The new feature in the five-sector model is the overseas sector that includes imports and exports - Trade.

The same principles apply to this model as the imports argon represented as spending, however the money goes out of the economy. metal(prenominal) pass on imports by households or firms reduce income spent in the economy and ar therefore classified as leakages from the model. Imports can be categorised as the consumption of goods and services from the rest of t he World and they reduce income, expenditure! , output and employment from the Australian market economy. Importing goods mean that fewer Australian resources are utilised and production falls. Thus, the level of income decreases and... If you want to get a full essay, order it on our website: OrderEssay.net

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