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Figure 3.14 The Complete Circular Flow shows a more complete version of the circular flow. It includes five sectors: the household and firm sectors that we have seen already, a government sector, a financial sector, and a foreign sector. In every sector of the circular flow, accounting rules tell us that the flow of money in must equal the flow of money out. When we look at this sector by sector, we discover five accounting relationships, each playing an important role in macroeconomics. For now, we take a very quick look at each one in turn. 1
Figure 3.14 The Complete Circular Flow
The circular flow of income describes the flows of money among the different sectors of an economy. This representation includes the five main sectors: households, firms, government, the
financial sector, and the rest of the world.
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