Explain circular flow of economic activities? …

Circular flow of income in four-sector economy. Without introducing external sector (also called Rest of World — ROW), our model will remain incomplete. The domestic economy is connected with ROW through international trade (imports and exports) and capital flows. In case of imports, money flows to the ROW whereas in case of exports money flows in from ROW. Mind, imports are leakages and exports are injections into the circular flows of income in the economy. The four-sector model of the economy is fully depicted in Fig.(c).
Significance of circular flow of income (i) It reflects structure of an economy. (ii) It shows interdependence among different sectors. (iii) It gives information about injections and leakages from flow of money. (iv) It helps in estimation of national income and its related aggregates.