Generally resources the government receives are known as revenue and the resources the government spends are known as expenditures. utilities, banking services).Ĭonversely, the government purchases or receives substantial labor and capital from the market for factors of production.
The government also offers several finished goods and services in the market through SOEsand nationalizedindustries (e.g. In return, households and firms provide tax revenue to the government in a variety of forms. The government provides innumerable resources to households and firms ranging in everything from highways and libraries to welfare and military defense. Remember the government is both a producer of social resources and a consumer of resources. The government is generally involved at all levels through its own transactions with households, firms, and the two markets. In addition to households and firms, most economies incorporate governmental actors (some larger and more involved than others). This model is perhaps overly simplified and becomes increasingly complex as other parties and transactions form. Two Circles depicting the trade that moves resources throughout the economy: Money and Resources.Two Markets: Market for Factors of Production and Market for Finished Products.The basic model depicts the simplest of all market economies:
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