Question

explain the real flows and money flows with the help of diagram.

Answer 1

Real flow is the exchange of goods and services between household and firms whereas money flow is the monetary exchange between two sectors.

In real flow household sector supplies raw material, land, labour, capital and enterprise to firms and in return firms sector provides finished goods and services to household sector. Whereas in money flow, firm sector gives remuneration in the form of money to household sector a wages and salaries, rent, interest etc.

Difficulties of barter system for the exchange of goods and factor services between households and firms sector in real flow, whereas no such difficulty or inconvenience arise in money flow.

When goods and services flow from one sector of the economy to another, it is known as real flow.