Flow of Funds among Three Sectors (Period 2)

• Period 2: Government runs a budget surplus

  • Assume no changes in imports and exports

                                                 Domestic
              Government                         Private                           Foreign

        \                    /            \                    /            \                    /
         \                  /  Spend:  90  \                  /  Import:  5  \                  /
          \                /   --------->   \                /   --------->   \                /
           \              /    Tax:   100    \              /    Export:  3    \              /
            \            /     <---------     \            /     <---------     \            /
             \__________/                      \__________/                      \__________/

continued...