Sign up now
to enroll in courses, follow best educators, interact with the community and track your progress.
Circular flow of income
2,141 plays

This lesson helps to understand about circular flow of income with the image.

Arpita Prakash
NCERTs series initiator at Unacademy 'Educator of the Month' for Feb'19 CBSE 0.1% Merit Certificate holder in Mathematics

Unacademy user
  1. Simplified Economy: o One way in which households may dispose off earnings ->by spending entire income on goods and No saving, no government ( no taxes ), no external trade (no buying of imported goods) . Aggregate consumption by households aggregate expenditure on goods and services services produced by domestic firms - Remunerations used by factors of production to buy produced goods and services produced by firms Entire income comes back to producers in form of sales revenue No leakage from the system (factors payments made by firms sales revenue from consumption expenditure) Aggregate income of the economy goes through two sectors- firms and households; in a circular way

  2. Spending Goods and Services Firms Households actor Payments Factor Services Fig. 2.1: Circular Flow of Income in a Simple Economy