Global Economic and Finance Cycle
Globalization is a process of integrating the domestic economy with other economies of the world. The Circular Flow of Income has been an age old concept which now gives rise to the revolutionary concept of GEFC. The idea of GEFC is to necessarily capture the essence of the operations of an
economy and subsequently understand the various economic changes in such a dynamic environment.
Despite of being a time consuming process, we make attempt to understand in a non-conformist manner through the Global Economic and Finance Cycle. Decisions pertaining to setting up of projects, recruitments, mobilization of funds, disbursal of funds have to be taken, considering the growth potential, demand, government policies, the possibility of international trade and so on.
In order to simplify our understanding of the economy, we break it into the five sectors of our GEFC Model.
The household sector has a give and take relationship with all the other sectors of the economy. It comprises of families that provide various factors of production to the production sector and in return they receive factor incomes from the production sector.
It showcases all those entities that are involved in the production of goods and services. It displays a give and take relationship with the government wherein it pays direct as well as indirect taxes and also sells goods and services (for which it receives money from the government).
It comprises of all those entities that takes the savings of the people and provide a channel to finance the production house. The Central Bank is the biggest financial intermediary with controls all the other financial intermediaries.
It also attracts foreign institutional investors from external sectors.
- Foreign Direct investment (FDI)
- Foreign Institutional Investment (FII) or Foreign Portfolio Investment (FPI)
The government is involved in both the household as well as the production sectors. Its role is to ensure the economic growth, social welfare and overall development of the economy and so it plays the role of consumer as well as the producer. Imposing direct taxes on both the production as well as the household sectors enable the government to establish a relationship between the two sectors.
It is the most essential sector of the GEFC and represents the integration with other economies of the world. It encases the relationship build with the outside economies of the world through international trade (import-export), movement of factors like investment or labor.