circular flow
Post on 06-May-2015
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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.
Meaning of Circular Flow
Prepared By:- KVS, Delhi Region
TYPES OFCIRCULAR FLOW
Product Flow(Real Flow)
Factor FlowProduct / Goods
Flow
Income Flow(Monetary Flow)
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
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.
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
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.
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.
Prepared By:- KVS, Delhi Region
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
Prepared By:- KVS, Delhi Region
Questions for self-EvaluationWhat 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.
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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