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    Eco - Circular Flow of Income

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    poorani2827
    The document discusses the circular flow of income, including its three phases of generation, distribution, and disposition. It also compares stock and flow, describing the two types of circular flow as real and monetary flow. Differences between real and monetary flow are outlined. Finally, the role of the government sector in an economy is briefly explained.

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    Eco - Circular Flow of Income

    Uploaded by

    poorani2827
    20 views2 pages
    The document discusses the circular flow of income, including its three phases of generation, distribution, and disposition. It also compares stock and flow, describing the two types of circular flow as real and monetary flow. Differences between real and monetary flow are outlined. Finally, the role of the government sector in an economy is briefly explained.

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    Eco - Circular flow of income

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    The document discusses the circular flow of income, including its three phases of generation, distribution, and disposition. It also compares stock and flow, describing the two types of circular flow as real and monetary flow. Differences between real and monetary flow are outlined. Finally, the role of the government sector in an economy is briefly explained.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views2 pages

    Eco - Circular Flow of Income

    Uploaded by

    poorani2827
    The document discusses the circular flow of income, including its three phases of generation, distribution, and disposition. It also compares stock and flow, describing the two types of circular flow as real and monetary flow. Differences between real and monetary flow are outlined. Finally, the role of the government sector in an economy is briefly explained.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Chapter 1: Circular Flow of Income

    Question 1

    What do you mean by Circular Flow of Income?

    Ans: The circular flow of Income refers to the flow of money, services, and
    goods, etc. This circulation happens in terms of income in the production
    process, distribution between the factors of production, and at the end the
    circulation of the product from household to a firm in the form of consumption
    expenditure on goods and services manufactured by them.

    Question 2

    Explain the three phases of the circular flow of income.

    Ans: The three different phases in the circular flow of income are-

    Generation Phase- In this phase, the firm manufactures the goods and
    services with the assistance of factor services.
    Distribution Phase- This phase involves the flow of factor income, which
    comprises of rent, interests, wages, and profit from firm to the household.
    Disposition Phase- Here, the income collected by the factors of
    production, is used on the goods and services manufactured by a firm.

    Question 3

    Give two differences between Stock and Flow with examples.

    Ans: The two difference between Stock and Flow with examples are.

    Basis Stock Flow


    Time dimension exists as the
    Time There is no time
    magnitude can be scaled over a period
    Dimension dimension
    of time
    Nature of
    It is a static concept It is a dynamic concept
    concept

    Total number of
    Hero Honda Car manufactured
    Hero Honda bike in
    Examples during February 2018
    Bangalore
    National Income
    National Wealth

    Question 4

    How many types of circular flow?

    Ans: There are two types of circular flow.


    Real Flow- The term real flow means the flow of factor services from
    household to firms. Similarly, the flow of goods and services from firms to
    household
    Money Flow- The Money flow refers to the flow of factor payments from
    firm to household for factor services. Similarly, the flow of consumption
    expenditure from household to firm for the purchase of goods and services
    manufactured by the firm.

    Question 5

    Give three differences between Real Flow and Money Flow.

    Ans: The three differences between Real Flow and Money Flow are.

    Basis Stock Flow


    Kind of It includes the exchange of goods and It only involves the
    Exchange services exchange of money
    Difficulty in Lots of difficulties involved in the No such difficulties in
    Exchange exchange of goods and service terms of money flow
    Alternative Also, known as Nominal
    Also, know as Physical Flow
    Names Flow

    Question 6

    Explain the role of the government sector in an Economy.

    Ans: Government sector performs the following activities in the economy.

    They collect taxes from households and firms


    They make transfer payments to the households and provides subsidies to
    the firms
    They make the payment for the purchase of goods and services from the
    firms
    They save and borrows money with the help of the financial market.

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