What are the two different types of circular flow of income models?

The first is in a closed economy, where there are just households and firms present and thus no exchange between the two in terms of spending and transfer of goods and services. The second is in an open economy, where leakages (spending by households) and injections into the economy (externally derived income). The leakages in this model include taxation, due to households having to pay income tax; savings, due to households potentially deciding to save their inome rather than spend it and thus reducing consumer spending in the economy; finally imports, due to spending by households on goods and services produced overseas. The injections in this model include investment, due to spending by firms on capital goods produced by other firms, therefore bringing income into the model; government spending, due to the UK government spending on goods and services from other UK firms, providing those firms with revenue; finally exports, due to UK firms selling goods and services overseas, thus bringing export revenue. 

Answered by Rohan T. Economics tutor

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