Notes 5’’’’. A more complete circular flow model
Foreign
Sector
Gov’t.
Purchases (G)
Borrowing
from foreign
sector*
Impo
orts (M)
Goods
G
d
mkt.
Government
Firms
Subsidies
Borrowing
for investment
Households
Borrowing to
cover budget
deficit*
deficit
Gov’t.
Purchases (G)
Saving
S
i
(S)
Loanable
Funds
mkt.
Factor
mkt.
*Assumes government budget deficits and trade deficits. In the event of surpluses, the flows are reversed.