<P> The other equation of disequilibrium, if S + T + M <I + G + X in the five sector model the levels of income, expenditure and output will greatly rise causing a boom in economic activity . As the households income increases there will be a higher opportunity to save therefore saving in the financial sector will increase, taxation for the higher threshold will increase and they will be able to spend more on imports . In this case when the leakages increase the situation will be a higher level of equilibrium . </P> <P> The book A General Approach to Macroeconomic Policy identifies four possible areas of significance: </P> <Ol> <Li> Measurement of National Income - National income is an estimation of aggregation of any of economic activity of the circular flow . It is either the income of all the factors of production or the expenditure of various sectors of economy . However, aggregate amount of each of the activity is identical to each other . </Li> <Li> Knowledge of Interdependence - Circular flow of income signifies the interdependence of each of activity upon one another . If there is no consumption, there will be no demand and expenditure which in fact restricts the amount of production and income . </Li> <Li> Unending Nature of Economic Activities - It signifies that production, income and expenditure are of unending nature, therefore, economic activities in an economy can never come to a halt . National income is also bound to rise in future . </Li> <Li> Injections and Leakages </Li> </Ol> <Li> Measurement of National Income - National income is an estimation of aggregation of any of economic activity of the circular flow . It is either the income of all the factors of production or the expenditure of various sectors of economy . However, aggregate amount of each of the activity is identical to each other . </Li>

Explain and illustrate the circular flow of income of an open economy