Question

Explain two sector economy with
financial market. (4 marks) *​

Answer 1

Answer:

The circular flow model in the two-sector economy is a hypothetical concept which states that there are only two sectors in the economy, household sector and business sector (business firms). The household sector is the source of factors of production who earn by providing factor services to the business sector.

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Answer 2

Answer:

In the basic two-sector circular flow of income model, the economy consists of two sectors: (1) households and (2) firms. ... The factor owners (households), in turn, spend all of their income on goods, which leads to a circular flow of income.