Circular Flow of Income — Part 2: Government, the World, Leakages and Injections: visual lesson, ISC Class 12 Economics

Lesson

Government, the World, Leakages and Injections

Part 2 — the three-sector and four-sector models, and the balance of leakages and injections.

In this lesson you will

Part 2 at a glance

Diagram

Three-sector model (money flows only): leakages are saving and taxes; injections are investment and government spending.

The government collects taxes and returns money as purchases, salaries, transfers and subsidies.

Compare

Government purchase

Transfer payment

Table comparing a government purchase with a transfer payment: a purchase brings goods in return and has a matching real flow; a transfer has nothing in return
	Government purchase	Transfer payment
Example	Desks bought for state schools	Old-age pension, scholarship
Anything given in return?	Yes: goods or services	No
Real flow?	Yes, opposite to the payment	No