Four sector model
Definition. The four sector model of the circular flow of income shows the flows of income and expenditure between households, firms, the government, and the foreign sector in an open economy. It incorporates all three injections, namely investment, government spending, and exports, and all three withdrawals, namely saving, taxation, and imports.
National income is in equilibrium when total injections equal total withdrawals, that is when investment plus government spending plus exports equals saving plus taxation plus imports.
This term belongs to The Circular Flow of Income in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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