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The diagram shows three sectors of the economy, with various money flows shown as moving between them. The money flows are shown as dashed arrows, indicating the direction of flow.

The Household sector is in a blue rectangular box on the left of the diagram; the Firms sector is also in a blue rectangular box is on the right of the diagram; and the Government sector is in a green rectangular box which lies above the other two and in the centre.

From households, consumer expenditure flows to firms and taxes flow to government. There is also a flow of savings from households and this is shown by an arrow pointing out of the circuit of flows – indicating a leakage out of the circular flow.

From firms, income flows to households and taxes flow to government. There is also a flow of investment expenditure to firms. This flows in from outside the circuit of flows – indicating an injection into the circular flow.

From government, government expenditure is shown flowing to both households and to firms.

 Taxation and the circular flow of income