Question

Income generated in production units reaches back to production units and makes the circular flow complete”. Justify this statement with proper explanation diagrammatically. Income generated in production units reaches back to production units and makes the circular flow complete”. Justify this statement with proper explanation diagrammatically.

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Answer 1

Answer:

• the flow of production income generation and expenditure involving different sector of economy in the form of wages rent and division is know as circular flow of income (see the diagram). Production gives rise the income (factor income) which in turn gives rise demand for goods and services.

• This demand leads to the expenditure by on household goods and services produces.
• In this way income generated by production units research back to production units and makes the circular complete.

Answer 2

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