The public sector and the financial institutions are primarily seen as gatekeeper in the circular flow...

The public sector and the financial institutions are primarily seen as gatekeeper in the circular flow of income in an economy. Based on the statement above, do you agree or disagree that they both play the role of an unbiased referee to the economy circular flow of income?

Be sure to give reasons and supporting evidence for your position.

Expert Solution

Answer :

Yes I strongly agree that the Financial and Government play the role of an unbiased referee to the economy circular flow of income as -

In the given model, the financial institutions provide the option for households to save their money. This is a dump in flow because the saved money is an idle asset that means not all output will be purchased and he money will out of low. Thus the financial sector acts as a door closer in excess of circular flow. On the other hand it work as door opener that the financial sector provides investment (I) into the business/firms sector.

The Government sector collect revenue through Taxes (T) that is provided by households and firms to the government. This is same as door closer because it is a leakage out of the current income thus reducing the expenditure on current goods and services. on the other hand the government sector provides Government spending (G) that provides collective services and welfare payments to the community so it boost flow again.

by the given digram it can be understand perfectly.

Rahul Sunny answered 7 months ago

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