Economics

• What does the external sector include in the circular flow model?

  Imports and exports
• What do financial institutions do in the economy?

  They provide cash to firms and accept deposits from households
• What is the purpose of households putting money into banks?

  To save and earn interest on their savings
• What are the components of money flow in the circular flow model?

  • Money in: Factor incomes, Exports, Tax, Capital investment
  • Money out: Imports, Experience, Taxation, Savings
• What is the multiplier effect in the circular flow model?

  It is when the actual change in national income is greater than the initial injection