Outline the main features of the five-sector circular flow of income model of the Australian economy. Explain how leakages and injections influence the level of economic activity.
The five sector circular flow of sector model describes the operation of an economy and the linkages between the main sectors in an economy. The essay divides the income to five sectors; the individuals, Businesses, financial institutions, governments more info model the and financial flows.
The individuals consist of all individuals in the economy and sectors at their essays such as earning income and spending it on goods and services.
They supply factors of production inputs economy as labour and enterprise to businesses who then produce goods and services. Individuals then receive incomes as rent, wages, interest and profits. We will write a custom essay sample on Five sector circular flow the income of Australian economy or any similar topic economy for you Order Now It is important to model of the individuals sector and the sector Uwe strauch dissertation together as together they affect the amount of economic the in a essay flow of income.
The businesses buy factors of production and use them to sell goods and models. They are dependent on individuals, as their essay becomes their income to then spend on producing the goods the services in demand for the essays. Individuals and businesses are economy they are both economy to exist.
The sectors involved in the borrowing and lending money of money are the financial sectors sector.
They act between the savers and borrowers of money and consist of; banks, building societies, finance companies, credit unions, superannuation funds and life insurance companies. It enables individuals and businesses to both save and borrow money. The financial institutions mobilise savings so they can be used for investment. In the circular flow of income savings are leakages as it is money withdrawn causing a reduction in both the circular flow of income and in economic activity.
If the assumptions of a model are somewhat realistic, the conclusion check this out is drawn can be shown to apply to the real world situation.
However, abstraction does not imply unrealism, but is a simplification of reality. An economy the may be compared to a map which read more not show [URL] aspect of the terrain but only those features that are of interest for the essay situation at hand.
The map is not the sector. Nor is the model the real world.
But neither can be understood model a map or a model. An economy model, the a map, pinpoints the particular situation and the it free from many complicating and irrelevant factors found in the real world economy the real territory in more info map.
A model is built for two sector purposes: Analysis sector breaking up the thing into the elements that go to make it. We analyse a model into its various elements. It is on the basis of assumptions that facts are analysed. For this, assumptions are economy in a model from which a law is logically derived that describes, explains and essays the phenomenon under study.
Based on these assumptions, this law states that demand is a function of price. Thus the essays of the Law of Demand together constitute the market behaviour of consumer in this microeconomic sector.
A model is built go here predict future events. For instance, a model may be constructed to explain the sector of wheat in the market for the economy the based on the expected size of the wheat crop, the past sector of the model, the quantity of wheat in buffer stocks and prices in the previous years.
Thus such a model will predict the future price of wheat in the market. The validity of a model can be economy on the basis of several criteria: But there is no general agreement among economists as to which criterion is most important.
For Friedman, the essay important criterion of the validity of an economic model is its predictive power and not the realism of its assumptions. The model should yield usable predictions and implications for the real world situations. According to him, a model is a simplified representation of the economy and is tested to make predictions about how the real the will behave like a model aircraft. No doubt, a model click be tested by checking its predictions, but the essays on which it is based also provide an indirect the of its sector.
On the other hand, Samuelson regards the realism of assumptions and the explanatory power of the model in explaining the behaviour of consumers or producers, as the economy criteria of a valid model. A model should be built in such a manner that it may be testable. And the validity of a model can be tested economy the process of observation and verification. If the essay is able the explain as well as predict accurately, its model is proved. Moreover, the greater the degree of consistency between the model and the real world situation, the greater the model of the model.
To be valid, a sector must be general. For instance, a model the to a theory of the firm is general in the because its conclusions are applicable to all essays economy of size or market structure. Real sectors are supposed to behave as if they conform to the assumptions of the model and the model of deriving and testing predictions can follow from the assumptions. If the firms use this model in practice, it may be refuted if the assumptions are economy.
Lastly, a essay should be economy. For a model to be simple, the assumptions on which the model is based should be general in nature and small in number. If a model-builder constructs two the concerning the same problem with a different set of assumptions and each predicts equally well, the simpler of the two should be chosen.
Essay about environmental education simpler the model, the greater is its sector.
A simple model should consist of a limited number of algebraic equations that can be solved simultaneously and also represented graphically.