The five-sector circular flow model represents an open economy like Australia's, and demonstrates the important relationships between the different sectors in the Australian market economy. It is the last circular flow model because it does not have any assumptions that need to be left out such as governments and trade. The five parts of the model: households, firms, finance, Government and overseas sectors work collectively to form the economy. The inter-relationships between these sectors create market economic conditions that affect every Australian.
The model of the economy demonstrates that it literally works as a flow or a cycle. It can the be further defined to include two flows, one, a flow of goods and services and the other, a flow of money. The flow diagram demonstrates that when one sector is at risk it puts economic market conditions in jeopardy because they are all reliant upon one another. …
