Federal, state, and local governments, often referred to as the public sector, are also involved in economic activity. Governments collect taxes and use tax revenue to pay for items such as national defense, highways, education, police and fire protection, and many other goods and services. The public sector can be added to the circular flow model to show how government interacts with households and businesses in product and resource markets. The circular flow model can be further extended by adding the foreign sector. Some outputs produced by firms are exported and purchased by people in other countries; some goods and services purchased by households are produced in other countries and imported. If the value of exports exceeds the value of imports, a country has a trade surplus. If the value of imports exceeds the value of exports, a country has a trade deficit. A balance of trade exists if the value of exports equals the value of imports. Attempting to add financial markets, the public sector, and the foreign sector to the circular flow model takes it from being a simple diagram to one with a complex arrangement of markets, arrows, and market interactors. It is not as useful in