5 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 …

…it receives through taxation. This stimulates spending, employments rises and the economy usually booms. The problem with the fiscal policy, is that the effects are only shown around 18 months later. Therefore if the government budgets incorrectly either way they will only see the effects a year and a half later. The Australian Federal Government have been budgeting for a surplus in recent years and have still allowing the economy to grow without major price increases.