Answer to Question #108287 in Macroeconomics for Sudeshna Saha

Question

WXYZ is a nation run by an elected government. WXYZ is also having trade relation with many other states. Explain a hyoothetical circular flow of income for WXYZ with the help of a diagram.

Answer 1

A hypothetical circular flow of income for WXYZ can be seen at next picture:

1. Households: sell resourses and earn salaries, buy impor and domestic production, pay taxes and recieve government services, put its saving in financial market and recieve interest.
2. Bussines: export and import production, employ resources from housholds and pay salaries, puts its saving in financial market, recieve investment, pays taxes and recieves state services.
3. Government: collects taxes, provide services, purchases goods.
4. Financial market: recieves housholds and firms savings, pays interest, invest in bussines.
5. Other states: export its production to households and firm and recieve payment, import country's production, put its saving in financial market and recieve interest.