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Question
Read the below case and answer the question that follow:
Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.
The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.
The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.
Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.
Circular flow of income refers to the flow of activities of production, income generation and expenditure involving different ______ of the economy.
Options
Sector
Aspect
Type
None of the above
Solution
Circular flow of income refers to the flow of activities of production, income generation and expenditure involving different Sector of the economy.
Explanation:
There are Two Economic Sections:
- Firms
- Households