Circular flow models by number of sectors:

• Two-Sector Economy: Household sector (A) and Business/Firm sector (B).
• Three-Sector Economy: Closed economy adding the Government sector (C) to Households (A) and Firms (B).
• Four-Sector Economy: Open economy incorporating the External/International sector (D) (exports and imports) alongside Households, Firms, and Government.

Mathematical derivation of the investment multiplier ($k$):
Formula: $k = \frac{\Delta Y}{\Delta I}$.
Since $Y = C + I \implies \Delta Y = \Delta C + \Delta I \implies \Delta I = \Delta Y - \Delta C$.
Dividing both sides by $\Delta Y$:
$\frac{\Delta I}{\Delta Y} = 1 - \frac{\Delta C}{\Delta Y} = 1 - MPC = MPS$.
Taking the reciprocal:
$k = \frac{\Delta Y}{\Delta I} = \frac{1}{1 - MPC} = \frac{1}{MPS}$.

Distinction between Microeconomics and Macroeconomics:

• Statement (I) is false: The study of a particular firm, household, individual prices, and wages defines Microeconomics (not macroeconomics).
• Statement (II) is false: The study of aggregates, overall economy, national income, general price levels, and aggregate output defines Macroeconomics (not microeconomics).
• The definitions provided in the statements are exactly reversed; hence both statements are false.