PLEASE EXPLAIN CIRCULAR FLOW OF INCOME
Answers
The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.
The circular Cash flow of income is a two-way channel of an economy in which there is a link between money, production, and services.
EXPLANATION-
To understand the circular cash flow, we have to look for 3 sectors of the economy that is
- Industrial sector,
- The household sector, and
- Government or banking sector.
The industrial sector is the sector of the society that acquires the raw materials, labor, money, and land from the society and render services, wages or salaries, interest or profit and rent for the acquire resources.
Whereas, The household sector purchases the goods and services rendered by the industries sector and gets a salary for the amount of service they offer to the industrial sector/ business sector.
So, this two-way channel is completed by the process of exchange of resources in one or form to create a circular flow which starts with acquiring resources from the society to make the payments of the consumption of goods and services offered.
Conclusion-
Hence, both the sector work interdependent to full fill the needs to complete the channel of exchange of goods and services through payments made.
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