![]() ![]() These represent all firms, households, governments, and financial institutions outside of one's nation, who act as both consumers and suppliers of goods and services from/to your nation. Borrowers take money out of these institutions to fund consumption and investment (as well as government budget deficits) their demand and the available supply of loanable funds generally set the interest rate - the price to borrow or save money.Įxporters and importers simply represent the foreign sector of the macroeconomy. Savings are deposited in financial institutions, and these create a supply of money to be loaned out. Through payroll of government employees, transfer payments, purchases of goods and services, and loans from the Federal Reserve System, the government also returns money to both firms and households alike.įinancial institutions are firms such as banks, savings and loans, and credit unions that provide the service of acting as a repository of loanable funds. ![]() Though taxes and other fees, government siphons money out of the private sector to provide certain goods ans services which firms cannot or would not normally (such as police protection and national defense). Government, at all levels, acts primarily as both a consumer and supplier of goods and services it also at time provides factors of production to firms. Households demand goods and services that firms produce, while at the same time supplying firms with factors of production - land, labor, capital, and entrepreneurship - in exchange for payments from firms that are collectively called income. In exchange for the goods and services they produce, they receive payments which are collectively called revenue. ![]() Essentially, the functions break down as follows:įirms supply both intermediate and final goods and services available in the economy, while demanding the factors of production which they must consume in order to produce those goods and services. ![]()
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