Question

State different sectors in an economy from the viewpoint of circular flow of income.

Answer 1

The different sectors of an economy from the viewpoint of the circular flow of income are:

1. Household Sector: Supplies factor services and consumes goods and services.
2. Firms Sector: Engages in the production of goods and services using the factors of production provided by households. It pays income to households and receives payment for goods and services.
3. Government Sector: Collects taxes from households and firms and spends on public goods and services. It also provides subsidies, transfer payments, and purchases goods and services from firms.
4. Foreign Sector: Deals with exports and imports in international trade.
5. Financial Sector: Includes financial institutions like banks that facilitate savings and investment. It channels savings from households to firms and the government through loans and investment.