What is meant by circular flow of income? Distinguish between Real flow and Money flow - Class12
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Our existing contributors are listed at https://commerceaspirant.com/contribu... What is meant by circular flow of income? Distinguish between Real flow and Money flow. - Class12 Macroeconomics
Solution:-
Circular flow of income represents the flow of money among the different sectors of an economy.
In two sector model, The Circular flow of income depicts the flow of money between household and firms. Households receive payments for the factor services and use that money for consumption expenditure. Whereas, firms produces goods and services with the help of factor services and make factor payment to the households.
Real flow and Money flow
Real flow -
Meaning - Real Flow refers to the flow of factor services from household to firms and flow of goods and services from firms to households.
Other Name - It is also known as Physical Flow.
Involvement of Money - No money is involved in this flow.
Magnitude of Growth process - This flow determines the magnitude of growth process in economy.
Money flow -
Meaning - Money Flow refers to the flow of factor payments to household by firms and flow of consumption expenditure from household to the firms.
Other Name - It is also known as Nominal Flow.
Involvement of Money - It involves exchange of money.
Magnitude of Growth process - This flow does not determine the magnitude of growth process in the economy.
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