Question

explain the circular flow of income with external sector in the three sector economy with the help of diagram​

Answer 1

Answer:

Circular flow of income in a three-sector economy

There are three main sectors of economy consists of household sectors, business sectors and government sectors. Household sectors combine their income and product, business sectors with the income and product of the government sector will reach at the national income in the economy.

Household sector----- provides the factors of the production such as land, labour and capital and enterprise that the producers require to produce goods and services. They also receive payments as in rent, wages, interest and profits from the business sector. It is also stated that in general, household sector consists of the greatest number of consumers among all sectors and satisfying the wants will cause consume of their climate aim.

Business sector act as a part as in receiving economy resources from household sector and in exchange for consumer expenditure, they also provide household sectors goods and services. Business sector is also given money to buy scarce economic resources from the resource market. While they’re in the product market, business sector sells their products and services, which is also the way they receives their income.

To complete the circular income of income and expenditure in a three-sector closed model, the government sector =

added. Taxation is a leakage from the circular flow and government purchases are injections into the circular flow. To do so, government sector implements taxes on businesses and consumers. They also act as a part to spend the money back on business and consumers for the other sectors’ benefits. Government incurs expenditure on goods and services

Explanation:

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