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. Prepared By:-
KVS, Delhi Region
TYPES OF
CIRCULAR FLOW
Product Flow
(Real Flow)
Factor Flow
Product / Goods
Flow
Income Flow
(Monetary Flow)

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. 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. 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. 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. 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. Prepared By:-
KVS, Delhi Region

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. 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. 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