This is a 2-sector, open economy. In fact national income accounting has its foundation in the model of circular flows which can be depicted in two-sector, three-sector and four-sector models as explained below. The arrows denote the flow of income through the units in the economy. Discuss briefly, the circular flow of income in a two sector economy with the help of a suitable diagram. THREE-SECTOR, THREE-MARKET CIRCULAR FLOW: A circular flow model of the macroeconomy containing three sectors (business, household, and government) and three markets (product, factor, and financial) that illustrates the continuous movement of the payments for goods and services between producers and consumers, with particular emphasis on taxes and government purchases. The five sector model of the circular flow of income is a more realistic representation of the economy. For this, we add taxation and government purchases (or expenditure) in our presentation. The structure of macroeconomy is given by circular flows of income and output. Real flows of resources, goods and services have been shown in Fig. (a) Circular Flow of Income in a Two-sector Economy. The five sector circular flow of income model describes the operation of an economy and the linkages between the main sectors in an economy. Therefore, as well as save, households are also likely to pay taxes (T) to the government (G), and further income is withdrawn out of the circular flow of income. Circular Flow of Income and Expenditure in a Three-sector Model . Households spend all of their income (Y) on goods and services or consumption (C). Circular Flow of Income and Expenditure of the Two - Sector Economy a) Households: Households own all factors of production and they sell their factor services to earn factor incomes which are entirely spent to consume all final goods and services Since the first assumption is relaxed there are three more sectors introduced. The meaning of circular flow of income. Sandeep Garg Class 12 Macroeconomics Solutions Chapter 1 Circular Flow of Income is explained by the expert Economic teachers from the latest edition of Sandeep Garg Macroeconomics Class 12 textbook solutions. Two sector economy… Household Sector: Households provide factor services to firms, government and foreign sector. Circular flow of income - three sector open economy 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 revenue) and injections (investment, government revenue and export revenue). Introduction • The four sectors of economy are combined to make three models for the purpose of illustrating the circular flows of income and expenditure, and of product and money. We at BYJU’S provide Sandeep Garg Economics Class 12 Solutions to give comprehensive insight about the subject to the students. It is necessary to … Circular flow of income in a four-sector economy consists of households, firms, government and foreign sector. There are three main sectors of economy consists of household sectors, business sectors and government sectors. Exports are an injection or inflows into the economy. Circular Flow of Money with Government Sector: So far we have been working on the circular flow of a two-sector model of an economy. This sector includes the government, which plays an important role in the economy. The public sector. From a simple version of the circular flow, we learn that, as a matter of accounting, In order to attain the circular flow of economic activity necessary adjustments of transactions in the various sectors of the economy are made. Figure 3 Circular flow - two sector, open economy. https://www.slideshare.net/JyotiNichherla/three-sector-model i. Two-sector model including the household and business sectors; ii. 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