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.
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
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