‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s income’.
Do you agree with the given statement? Support your answer with valid reasons.
Answers
Answer:
The statement is correct.
Explanation:
In a two-sector circular flow model, there are obviously only two-sector, namely, households and businesses.
The households are the owners of factors of production. They provide factor services to the businesses and earn factor incomes in return.
The businesses, on the other hand, use these factors to produce goods and services. The households purchase these goods and services and pay consumption spending to the businesses. In this way, one’s expenditure is the other’s income.
Answer:
Yes i agree with the statement
Explanation:
In a two sector economy the firms produce goods and services and make factors payments to the households. The factor income earned by the households will be used to buy the goods and services which would be equal to income of firms. The aggregate consumption expenditure by the households in the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy Income of the producers.