Economic Sectors of an Economy - Two-Sector Model with Savings and Investment

• Economy has households and firms, plus capital (financial) market.
• Households save part of income → saving (S) = leakage from circular flow.
• Firms invest in capital goods → investment (I) = injection into circular flow.
• Savings flow from households to firms through financial institutions.

Equilibrium condition:

• S = I → circular flow remains stable.

Disequilibrium:

• S > I → income falls.
• I > S → income rises.