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Circular flow

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Circular flow

  1. 1. Prepared By:- KVS, Delhi Region It refers to flow of income or flow of goods and services across different sectors of an economy in a circular form.
  2. 2. Prepared By:- KVS, Delhi Region TYPES OF CIRCULAR FLOW Product Flow (Real Flow) Factor Flow Product / Goods Flow Income Flow (Monetary Flow)
  3. 3. Prepared By:- KVS, Delhi Region REAL FLOW • It refers to flow of factor services and flow of goods and services. It consists of: a) Factor flow, i.e. flow of factor services b) Product flow, i.e. flow of goods and services
  4. 4. Prepared By:- KVS, Delhi Region MONEY FLOW • In a monetised economy the flow of factor services generates money flows in the form of factor payments which take the form of income flow. • The expenditure on goods and services take the form of expenditure flow. • Income and expenditure flows move in circular manner in an opposite direction.
  5. 5. Prepared By:- KVS, Delhi Region CIRCULAR FLOW OF INCOME IN A TWO SECTOR ECONOMY To present the flow of income and expenditure the economy is divided into two sectors: •Household sector •Firm sector
  6. 6. Prepared By:- KVS, Delhi Region HOUSEHOLD SECTOR • They are owners of all factors of production. • They receive factor income. • They are consumers of goods & services.
  7. 7. Prepared By:- KVS, Delhi Region FIRM SECTOR • They hire factors of production from the households • They produce and sell goods & services to the households and receive income from them. • They make factor payments to the households.
  8. 8. Prepared By:- KVS, Delhi Region
  9. 9. Prepared By:- KVS, Delhi Region In a simple economy • Total production of goods and services by firms = Total consumption of goods and services by household sector • Factor payments by firms = Factor incomes of households • Consumption expenditure of households = Income of firms • Real flow = Money flow
  10. 10. Prepared By:- KVS, Delhi Region Questions for self-Evaluation What is circular flow ? State the difference between Real flow and money Flow . Differentiate between factor income and factor payment. Explain diagrammatically the circular flow of two sector economy. Who are the owners of factor of production.
  11. 11. Prepared By:- KVS, Delhi Region Compiled by:- • Mrs. Anita Bhardwaj KV , Vigyan Vihar • Mrs Monika Bajaj KV ,Tagore Garden • Mrs Leena Singh KV,AGCR • Mr Sri Keshav KV , no.2 Delhi Cantt • Mrs Ritu Tanwar KV, AFS Rajokri

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