Globalisation is nothing but connect the nations together through international trade and aiming at global development.

There are three models of circular flow of income. They are,
(i) Two sector model
(ii) Three sector model
(iii) Four sector model

(i) In economic system both private and public sectors co-exist.
(ii) It work together towards economic development.

Globalism : An economic system where the economic activities of a nation are inter connected and inter dependent on each other nation.

(i) A Model is a simplified representation of real situation.
(ii) Economists use models to describe economic activities, their relationships and their behaviour.

(i) Capitalism is a system where the means of production are privately owned.
(ii) Market determines the economic activities (e.g.) The USA, Japan.

An Economy is refered to any system or area where economic activities are carried out.

Macro economics is the branch of economics that studies the behaviour and performance of an economy as a whole.

The important concepts used in macro economics are presented below:
(i) Stock and Flow Variables: Variables used in economic analysis are classified as stock and flow. Both stock and flow variables may increase or decrease with time.
(ii) Stock refers to a quantity of a commodity measured at a point of time. In macro economics, money supply, unemployment level, foreign exchange reserves, capital etc are examples of stock variables.
(iii) Flow variables are measured over a period of time. National Income, imports, exports, consumption, production, investment etc are examples of flow variables.
(iv) Economic Models: A model is a simplified representation of real situation. Economists use models to describe economic activities, their relationships and their behaviour. A model is an explanation of how the economy, or part of the economy, works. Most economic models are built with mathematics, graphs and equations, and attempt to explain relationships between economic variables. The commonly used economic models are the supply demand models and circular flow models and Smith models

Demerits of Capitalism:
1. Concentration of Wealth and Income :
Capitalism causes concentration of wealth and income in a few hands and thereby increases inequalities of income.
2. Wastage of Resources Large amount of resources are wasted on competitive advertising and duplication of products.
3. Class Struggle: Capitalism leads to class struggle as it divides the society into capitalists and workers.
4. Business Cycle: Free market system leads to frequent violent economic fluctuations and crises.
5. Production of non essential goods: Even the harmful goods are produced if there is possibility to make profit.

(1) Circular flow of income in a four sector economy.
(2) In a four sector economy. in addition to household, firms and government, a fourth sector namely, external sector is included.
(3) In real life, only four-sector economy is exists.
(4) This model is composed of four sectors namely.
(i) Households
(ii) Firms
(iii) Government
(iv) External
(5) The external sector comprises exports and imports.
(6) It is illustrated in the flow chart.

(7) In four sector economy, expenditure for the entire economy include domestic expenditure.
(C + I + G) and net exports (X-M)
(8) Therefore four sector model expressed as
y = C + I + G + (X-M)

1. Capitalism and socialism are two extreme and opposite approaches.
2. In capitalism, there is total freedom but in socialism, there is no freedom at all.
3. In capitalism, there is private ownership of means of production but there is public ownership of means of production in socialism.
4. Profit is the driving force behind all economic activities in capitalism but it is social welfare under socialism.
5. Capitalism enjoys free market but in socialism there is central planning.
6. There is unequal income distribution in capitalism but there is equal income distribution in socialism.
7. The major problem in capitalism is inequality but it is inefficiency in socialism.

National Income:
(i) Measurement of national income and its composition by sectors are the basic aspects of macro economic analysis.
(ii) It gives a long term understanding of the growth process of an economy.
Inflation:
(i) Estimating the general price level based on wholesale price, index, consumer price.
Business Cycle:
(i) Cyclical movements can be studied based on aggregate economic variables.
Poverty and Unemployment:
(i) Clear understanding about the magnitude of poverty and unemployment helps allocation of resources and adapting corrective measures.
Economic Growth:
(i) The growth and development of an economy and the factors determining them could be understood only through macro analysis.
Economic Policies:
(i) Macro Economics is used to frame economic policies.
(ii) Economic policies are used to solve the basic problems, to overcome the obstacles and to achieve growth.

(b) Reduction in inequalities

(a) Indian economy