Five Sector Model RE the Economy
Economics is so complex and there are so many different paths the economy can take, that the 5 sector model was devised to simplify the way we can look at it. The model attempts to illustrate how money should theoretically flow in the economy.
The first sector is the household sector. This consists of consumers who earn income in the form of wages, rent, interest and profit from the business or firm sector. In turn, consumers use this income to purchase products and/or services from the business sector.
The business sector includes all private businesses in the economy which produce good and/or services to consumers. Businesses buy productive resources from the household sector. Firms are always attempting to maximise profits by minimising costs.
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