ECONOMICS FUNCTION CIRCULAR FLOW OF INCOME - COMMERCE SCHOOL

Circular flow in four sector economy consists of government , household , firm and foreign sector .  

HOUSEHOLD SECTOR 

Household provide factor service to -
1. GOVERNMENT SECTOR  - By working for government as government employee .
2. FIRM SECTOR  - As a worker and by buying  good and services .
3. FOREIGN SECTOR - Buy purchasing good and services .

HOUSEHOLD SPENDS THEIR INCOME ON

1. Payment for good and services which are purchased from firms and foreign sector .

2. To government in the form of TAXES . 

    EX- DIRECT AND INDIRECT .
             . DIRECT TAXES - Which are paid directly in the form of income tax .
             . INDIRECT TAXES - which are paid indirectly .    

FIRMS

1.Firms received revenue from household , government and foreign sector for sale of their of good and service .
2. Firms also gets subsidies form government . By giving subsidies to firm government helps firms to produce more of goods .

FIRM MAKE PAYMENT FOR 

1. Firms make payment to household for their work .
    EXAMPLE - SALARY , WAGES , INCENTIVES ETC 

2. Firms make payment to government in the form of TAXES .

3. To foreign sector for the import of goods and services .

GOVERNMENT 

  Government receive revenue form household , firm and foreign sectors in the form of  TAXES , FEES , FINES ETC .

  

GOVERNMENT make payment in the form of providing servies to the peoples of countries and help firms by giving them subsidies .

FOREIGN SECTOR 

Foreign sector receive revenue from firms , household and government for export of good and services .
Foreign sector make payment for import of goods and services from firms and government .

THE SAVING OF HOUSEHOLD , FIRMS AND THE GOVERNMENT SECTOR GET ACCUMULATED IN THE FINANCIAL MARKET . FINANCIAL MARKET INVESTS MONEY BY LENDING OUT MONEY TO HOUSEHOLD , FIRMS AND THE GOVERNMENT . THE INFLOW OF MONEY IN THE FINANCIAL MARKET ARE EQUAL TO OUTFLOW OF MONEY . IT MAKE THE CIRCULAR FLOW OF INCOME COMPLETE AND CONTINUOUS .