rba.gov.au/education
                                                                                                                                                                                                                    twitter.com/RBAInfo
                                                                                                                                                                                                                    facebook.com/
             Illustrator                                                                                                                                                                                            ReserveBankAU/
                                                                                                                                                                                                                    youtube.com
             Circular Flow Model                                                                                                                                                                                    /user/RBAinfo
             The circular flow model describes the flow of money and goods and services 
             between different sectors of the economy. The solid arrows below show the                                     Economic resources – goods or services               Imports (M) – goods and services 
             flow of money through the economy.                                                                            that are used as inputs in production,               produced by businesses in other 
                                                           Income                                                          e.g. land, labour and capital (the                   countries and sold to Australia 
                                                                                                                           machinery, buildings and equipment                   Income – money received, e.g. wages, 
                                                                                                                           used to produce goods and services)                  rent and interest 
                                                     Economic resources                                                    Expenditure – the purchase of goods 
                                                                                                                           and services                                         Investment (I) – money the Financial 
                                                           Output                                                                                                               sector lends to Firms to spend on 
                                                                                                      
                       Household                                                             Firms                         Exports (X) – goods and services                     machinery, buildings and equipment 
                          sector                         Expenditure                        sector                         produced by Firms in Australia and sold 
                                                                                                                           to other countries                                   Output – goods or services produced to 
                                                                                                                                                                                be sold 
                                                                                                                           Financial sector – banks and other                   Overseas sector – the economic 
                                                          Financial                                                        financial institutions                               transactions of the economy with the 
                                                            sector                                                         Firms sector – businesses in the                     rest of the world, e.g. how resources 
                                         Savings (S)                       Investment (I)                                  economy                                              flow between Australia and its trading 
                                                                                                                           Government expenditure (G) – money                   partners
                                                                                                                           the government spends on public                      Savings (S) – money saved 
                                                         Government                                                        goods and services                                   Taxation (T) – money paid to the 
                                       Taxation (T)         sector         Government 
                                                                           expenditure (G)                                 Government sector – the national, state              Government
                                                                                                                           and local government
                                                                                                                           Household sector – individuals in 
                                                                                                                           the economy
                                                           Overseas
                         Payment for imports (M)            sector          Payment for exports (X)
                                                                     
        RESERVE BANK OF AUSTRALIA | Education                                                                                                                                                                   Circular Flow Model