The Circular Flow and the Role of Government - Essay Example

According to the Circular Flow of Income and Expenditure, the economy is characterized into 5 key sections that are firms, households, government, financial markets, and the world.

Governments are formed to help, guide, and lead the public and to provide them with the basic necessities. Therefore, households expect a lot from the government, which doubles their role in this regard. Keeping this scenario in mind, the role of the government is a crucial one, which should be focused on helping the people by solving their issues (McEachern).

It has been witnessed that households are also supposed to pay net taxes to the government while the government also increases the leakages in the circular flow by adding government expenditures (McEachern). The government leakage in the circular flow is the government expenditure or the government spending made by the government during a fiscal year which affects the overall circular flow. Thus, the government has certainly failed in maintaining balance in the circular flow of income and expenditures. It is high time that the government must understand its role and act responsibly in this regard as it is getting difficult for households to maintain the flow effectively.