Government Sector

Financial Sector

Households

Firms

Government Sector

Financial Sector

Households

Firms

Government Sector

Financial Sector

Households

Firms

Investments

Financial Sector

Savings

Taxes

Investments

Financial Sector

Savings

Taxes

Investments

Financial Sector

Savings

Taxes

Firms pay for labour in the form of income

Firms provided goods & services

Households buy goods & services

Households provide labour to Firms

Firms pay for labour in the form of income

Firms provided goods & services

Households buy goods & services with their income

Households provide labour to Firms

Households save part of their income (deposit it banks)

Firms borrow money from the bank to expand (investment)

Households pay tax to the Government

Government spends money on public works

Households save part of their income (deposit it banks)

Firms borrow money from the bank to expand (investment)

Households pay tax to the Government

Government spends money on public works such as roads

An increase in the level of household savings

An increase in the level of investment

A reduction in government expenditure on infrastructure

An increase in taxes (with government expenditure held constant)

that part of current income which is not spent on consumer goods and services

undertaken by those who make investment decisions

that part of current income which is spent on goods to be used immediately

the difference between income and taxation