What is the Circular Flow of Income and Expenditure ?
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Income and Expenditure
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In a two sector economy, the sum total of the factor incomes earned by the households is equal to the total of the expenditures by the households on the goods and services.There exist withdrawals and injections, which prevent the circular flow of income and money from remaining constant.The main source of revenue for the government is through taxes.The government may follow a balanced, deficit or a surplus budget.A flow of income may exist between the government sector and the capital market.The import and export of goods and services influence the circular flow of income.
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After studying this topic, you should be able to understand
In a two sector economy, the sum total of the factor incomes earned by the households is equal to the total of the expenditures by the households on the goods and services.There exist withdrawals and injections, which prevent the circular flow of income and money from remaining constant.The main source of revenue for the government is through taxes.The government may follow a balanced, deficit or a surplus budget.A flow of income may exist between the government sector and the capital market.The import and export of goods and services influence the circular flow of income.
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