Four Sector Model
A modern monetary economy comprises a network of four sector economy these are- 1.Household sector 2.Firms or Producing sector 3.Government sector 4.Rest of the world sector. Each of the above sectors receives some payments from the other in lieu of goods and services which makes a regular flow of goods and physical services. Money facilitates such an exchange smoothly. A residual of each market comes in capital market as saving which inturn is invested in firms and government sector. Technically speaking, so long as lending is equal to the borrowing i.e. leakage is equal to injections, the circular flow will continue indefinitely. However this job is done by financial institutions in the economy. Reference- S. Dinesh Introduction to Macro Economics .
Read more about this topic: Circular Flow Of Income
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