Chapter 1 Circular Flow of Income
Circular Flow of income: It refers to the flow of goods and services and incomes between the various sectors of the economy.
(1). Real Flow: It refers to the flow of goods and services between the two sectors of the economy. Flow of factors of production from household to firms & flow of goods & services from firms to households.
(2). Money Flow: It refers to the flow of money between the two sectors in the form of factors payment and Payment for goods and services.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgk6ri-KAduP50ZEbhRk1oQLeedl5IaBf-rn5yaFOvbKEHqND4mMzjS1VCSO3mntkIXYjMoVifGGw7lPMU9UHiz7FJ4OC-GX6oRFklkspUK1X8ECTgRsQYAF6XlLBnGPdUKbeXtG1vgbJp8/s640/Capture.PNG)
Phases of Circular Flow of Income:
(1). Generation Phase: In this phase, firms produce goods and services with the help of factor services.
(2). Distribution Phase: This phase involves the flow of factor of income( rent, Wages, interest and profit) from firms to the households.
(3). Disposition Phase: In this phase, the income received by factors of production, is spent on the goods and services produced by firms.
Difference between stock and flow
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOFGWUWIJ0XaPciZ1eJpwrgvnhFmYBl4u7E3800NJw2_S3nT1JkWC7QAFSTsRveOgVm_rZlt31EBgdt7rGlrJqFRtW98YJzSX_VQfC4BtKGyB57A-jyMqHErHbRAwTAkjVxZfwjmqgzisB/s640/Capture.PNG)
Comments
Post a Comment