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    Circular Flow of Income

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    itsransomwareaabs
    AGAIN.....DETAILED NOTES ON THE FIRST CHAPTER OF MACRO ECONOMICS!!!!!

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    Circular Flow of Income

    Uploaded by

    itsransomwareaabs
    5 views2 pages
    AGAIN.....DETAILED NOTES ON THE FIRST CHAPTER OF MACRO ECONOMICS!!!!!

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    Circular Flow Of Income

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    AGAIN.....DETAILED NOTES ON THE FIRST CHAPTER OF MACRO ECONOMICS!!!!!

    Copyright:

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

    Circular Flow of Income

    Uploaded by

    itsransomwareaabs
    AGAIN.....DETAILED NOTES ON THE FIRST CHAPTER OF MACRO ECONOMICS!!!!!

    Copyright:

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

    1.

    1 Circular Flow Of Income


    Circular Flow Of Income
    Introduction
    The unlimited wants and recurring wants of a human being have made the production process,
    a continuous process. In this process the 4 factors of production namely
    Land, Labour, Capital, Enterprise are combined together for production of goods and
    services

    Meaning Of Circular Flow Of Income


    It refers to a cycle of generation of income in the production process, its distribution among the
    factor of production and finally, its circulation from households to firms in the form of
    consumption expenditure on goods and services produced by them.

    Phases of Circular Flow Of Income


    1. Generation Phase: In this phase firms produce goods and services with the help of factor
    services.
    2. Distribution Phase: This phase involves the flow of factor income (R,R,I,P) from firms to
    the households.
    3. Disposition Phase: In this phase, the income received by the factor of production, is
    spent on the goods and services produced by firms.

    In this way, income generated in production units reaches back to production units and makes
    the circular flow complete.

    Stock and Flow


    1. Stock Concept: Stock Variable refers to that variable, which is measured at a particular
    point of time. Eg - Amount of goods as on 31st January 2024
    2. Flow Concept: Flow Variable refers to that variable, which is measured over a period of
    time. Eg - Production during the month of January 2024
    For more clarity - Imagine a water tank with a tap attached at the base, now open the tap, the
    tap represents Flow concept and the water in the tank shows Stock concept.

    Basis Stock Flow


    Meaning Stock variable refers to that variable, Flow variable refers to that variable,
    which is measured at a particular which is measured over a period of
    point of time. time.
    Time It does not have a time concept It has a time dimension as its
    Dimenstion magnitude can be measured over a
    period of time.
    Nature of It is a static concept It is a dynamic concept
    concept

    Types of Circular Flow


    Real Flow
    Refers to the flow of factor services from household to firm and the corresponding flow of goods
    and services from firm to the households.

    Money Flow
    Refers to the flow of factor payment from firms to households for their factor services and
    corresponding expenditure from households to firms for purchase of goods and services
    produced by firms.

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