Intro To Circular Flow

In Australia and altogether the countries around the world we see economies experiences a series of unprecedented fluctuations. They screw experience periods of substantial arrest and expansion and periods of contraction and recession. In Australia the federal government prolongs sparing growth and refutes recessions by it use of the fiscal policy. The Reserve buzzword of Australia uses the monetary policy to stabilise inflation (to a butt joint average of 2-3%) and cool demand, thus lengthening the sparing blast for an elongated period of time.

The circular flow of income model can be used to simplify the structure and workings of a market economy. The five domains of the economy represented in this economic model are households, firms, finance, government and overseas sector. A sector is defined as an aggregation of economic units which perform a similar economic activity or function. A closed in(p) economy is one with no overseas sector and thereof no international trade. An open economy is one characterised by the inclusion of an overseas sector and international trade and coin flow.
The household sector consists of all individuals in the economy who ready an income (i.e. wages, rent, interest and profit) by selling productive resources (i.e. land, labour, capital and enterprise) to the firms sector.



With the gold income earnt, households purchase goods and services from the firms sector to satisfy their needs and essentials and to reform or maintain their standard on living. The firms sector consists of all the private business enterprise in the economy which take in and distribute goods and services to consumers. Firms buy productive resources from the household sector and make factor payments (i.e. wage, rent, interest and profit) in return. Firms attempt to maximise profits from their production activities by minimising their costs and maximising their revenue. The finance sector consists of all the financial institutions (i.e. banks and non bank financial intermediaries)...If you want to get a full essay, order it on our website: Orderessay



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