The circular flow of money helps in calculating national income on the basis of the flow of funds accounts. The flow of funds accounts are concerned with all transactions in the economy that are accomplished by money transfers.
Q. How do you explain a circular flow diagram?
In economics, the circular flow diagram represents the organization of an economy in a simple economic model. This diagram contains, households, firms, markets for factors of production, and markets for goods and services.
Table of Contents
- Q. How do you explain a circular flow diagram?
- Q. How does a circular flow diagram work in economic activity?
- Q. What is the principle of circular flow of income and product?
- Q. What are the two basic principles involved in circular flow?
- Q. What are the various types of circular flow of income?
- Q. What is flow of national income?
- Q. What is the difference between stock and flow?
- Q. What is the primary difference between public and private goods?
Q. How does a circular flow diagram work in economic activity?
The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money. That is the basic form of the model, but actual money flows are more complicated.
Q. What is the principle of circular flow of income and product?
The circular flow of income involves two basic principles: (ii) Goods and services flow in one direction and the money payment to acquire them, flow in the return direction giving rise to a circular flow.
Q. What are the two basic principles involved in circular flow?
It involves two basic principles: (i) In an exchange process, the seller (producer) receives the same amount which the buyer (or consumer) spends. (ii) Goods and services flow in one direction and the money payments to acquire them flow in the return direction giving rise to a circular flow.
Q. What are the various types of circular flow of income?
Circular flow of income can be depicted in two sectors (Households and Firm), three sectors (Households, Firm and Government) and four sectors (Households, Firm, Government and Rest of the World) models.
Q. What is flow of national income?
Circular Flow of Income in a Two-Sector Economy It is defined as the flow of payments and receipts for goods, services, and factor services between the households and the firm sectors of the economy.
Q. What is the difference between stock and flow?
A stock is measured at one specific time, and represents a quantity existing at that point in time (say, December 31, 2004), which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time (say a year).
Q. What is the primary difference between public and private goods?
A private good is the opposite of a public good. Public goods are generally open for all to use and consumption by one party does not deter another party’s ability to use it. It is also not excludable; preventing the use of the good by another is not possible. Many public goods can be consumed at no cost.
