Role ofGOVERNMEN

T SECTORSUBMITTED BY:•Suvasmita rout

HOUSEHOLD

HOUSEHOLDS GOVERNMENT

TAXES/DONATIONS/

INVESTEMENTS/RESOURCES

ALLOWANCES/ SCHLORSHIPS/ NGOS/ PROVIDES EMPLOYMENT

INCOME

BUSINESS FIRMS

GOVERMENT

CORPORATE TAX/DIVIDENDS

ON INVESTMENTS

BUSINESS FIRM

GOVT PURCHASES/GOODS & SERVICES/PAYMENTS TO THE FIRMS/SUBSIDIES/ FINANCIAL

AID/ INVESTMENT

FINANCIAL SECTOR

FINANCIAL SECTOR

GOVERNMENT

Govt. borrowings(loan),

dividends & interests

Rate on Investments & yield dividends

REST OF THE WORLD

Rest of the world Government

LOAN/DONATIONS/GIFTS/GOODS & SERVICES/ IMPORT

LOAN/DONATION/GIFTS/GOODS & SERVICES/EXPORT

F.S

CRITICAL ELEMENTS

leakages

Leakage means withdrawal from theflow

LEAKAGES INJECTIONS

TAX EVASIONS INVESTMENTS

SAVINGS EXPORT

TAX HOLIDAY GOVT. SAVINGS

SUBSIDIES

HOARDINGS

PENSIONS

IMPORTS

The financial sector

In circular flow the leakage that financial institutions provide in the economy is the option for households to save their money. This is a leakage because the saved money can not be spent in the economy and thus is an idle asset that means not all output will be purchased.

How tax becomes a leakage:

• “Tax” is paid to Government from Households and firms.

• current income and reduces the expenditure on current goods and services.

• The injection provided by Government on this leakage is Government spending( services and welfare payments to the community.

• For e.g.. Income tax collected by Government is a leakage and Government spends some amount as food subsidy as an injection.

POLICIES

Economic policies

Medicine given to cure a “sick” economy.•Fiscal policies.•Industry policies.•Foreign exchange policies.•Monetary policies.•Trade policies.By these policy govt. stabilize the national economy by controlling interest rates or inflation& by pushing the employment rate towards full employment so that all sectors will affect.