Circular Flow Model
Circular Flow of Economic Activity (Four Sector Model)
Introduction
To analyze an economy as a whole economists developed different models. The significance of these economic models enable us to understand the economic activities more vividly. For this purpose an economy can be classified in to four major sector. Which includes households, firms, government and foreign sector or external sector. There is a simple model which constitute two sectors, that is households and firms. Its working can be understand with the help ofcircular flow of economic activity of two sector model. Gradually the role of government considered as an important one and the government sector also included to this model. This is popularly known as the three sector model economic activity. But now the four sector model become more important, because almost all the countries are opened and they are actively participating in foreign trade (export and import). So, the four sector model representing an open economy. Here this hub very briefly explained about the interactions between these four sectors and its working.
Four Sectors of an Economy
As mentioned above there are four integral parts or sectors consisting in a four sector model economy. They are house hold sector, firms, government and foreign sector. Each of them are briefly explained below.
Household sector : It consist of peoples or individuals. House hold sector provides factors for productions like labor, land, building, capital etc. Consumers are also listed under household sector.
Firms : It refers to the various industries which providing goods and services to satisfy the demand of households. Firms are hiring the factor services supplied by households and firms rewarded them in various forms like wages for labor, rent for land and building etc.
Government : It is an important part of any economy. The main function of government sector includes policy making, implementation of policies, law and order etc. The government may make
Introduction
To analyze an economy as a whole economists developed different models. The significance of these economic models enable us to understand the economic activities more vividly. For this purpose an economy can be classified in to four major sector. Which includes households, firms, government and foreign sector or external sector. There is a simple model which constitute two sectors, that is households and firms. Its working can be understand with the help ofcircular flow of economic activity of two sector model. Gradually the role of government considered as an important one and the government sector also included to this model. This is popularly known as the three sector model economic activity. But now the four sector model become more important, because almost all the countries are opened and they are actively participating in foreign trade (export and import). So, the four sector model representing an open economy. Here this hub very briefly explained about the interactions between these four sectors and its working.
Four Sectors of an Economy
As mentioned above there are four integral parts or sectors consisting in a four sector model economy. They are house hold sector, firms, government and foreign sector. Each of them are briefly explained below.
Household sector : It consist of peoples or individuals. House hold sector provides factors for productions like labor, land, building, capital etc. Consumers are also listed under household sector.
Firms : It refers to the various industries which providing goods and services to satisfy the demand of households. Firms are hiring the factor services supplied by households and firms rewarded them in various forms like wages for labor, rent for land and building etc.
Government : It is an important part of any economy. The main function of government sector includes policy making, implementation of policies, law and order etc. The government may make