There are four main economic agents/ sectors that contribute to macro economic activity
• Households
• Business sector / Enterprises
• Government
• Foreign sector
Macro economic is implemented with the transaction flows of economic sectors.
These transactions flows can be illustrated with a simple diagram.This diagram is named, circular flows of income and expenditure.
The economy which is implemented in households and the business sector is treated as a simple economy.
In this simple economy savings is a withdrawal / leakage and investments is an injection.
Aggregate income and aggregate expenditure are equal in a simple economy if savings and investments are equal.
The functions of a simple economy can be illustrated with an income and expenditure flow, as savings that is either no savings and investments or there is savings and investments in the economy.
The functions of a closed economy with government intervention to a simple economy
can also be illustrated with income and expenditure flow and can be illustrated with
income and expenditure
In a closed economy, total of savings and taxes are the withdrawals and the total of
government purchases and investments are the injections.
When taxes and savings are equal to the investments and government purchases, then
the aggregate income and aggregate expenditure are equal. That is Y =E.
If all four sectors function in the economy it is explained as illustrated by the
following income and expenditure flow.
Income and expenditure flow of an open economy can be illustrated as follows
In an open economy, withdrawals are savings, taxes and imports while
investments, government purchases and exports are the injections
When all withdrawals and injections are equal in the open economy, then the
aggregate income and expenditure are also equal.
Income and expenditure flow explains, that production flow is equal to income flow,
and income flow is equal to expenditure flow. ·
National income accounting estimates the value of production, income and
expenditure flows.
Some items should be exchanged in national income accounting
The following items should be exchanged from National accounting
