Explain circular flow of income in a two sector economy with the help of a suitable diagram.
Answers
Answer:
It is defined as the flow of payments and receipts for goods, services, and factor services between the households and the firm sectors of the economy.
Explanation:
The circular flow means the unending flow of production of goods and services, income, and expenditure in an economy. It shows the redistribution of income in a circular manner between the production unit and households.
These are land, labour, capital, and entrepreneurship.
The payment for the contribution made by fixed natural resources (called land) is known as rent.
The payment for the contribution made by a human worker is known as wage.
The payment for the contribution made by capital is known as interest.
The payment for the contribution made by entrepreneurship is known as profit.
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