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Circular Flow of National Income

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Circular Flow of National Income
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Akash Desai
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Circular Flow of National Income - December 31st, 2013

Satisfaction of human wants is the basis of economics. In a simple economy there are two sectors. They are (1) Households, (2) Firms.

The circular flow has two aspects. They are as follows:
Real Flow: It represents movement of factor services from the household to the firm and movement of goods and services from the firms to the households.
Money Flow: Representing the money value of the physical exchange involved. Money moves from households to firms when the payment is made for goods and services and from the firms to the households when the payment for the factor services are made. We conclude:-
National Product = National Dividend = National Expenditure

Three assumptions are made for explaining this continuous flow of economic activity.
(1) The economy must be a closed economy.
(2) No difference between imports and exports.
(3) No savings at all that is whatever is produced it is distributed or consumed.
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Jiten Mazee
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Student of Bachelor of Engineering at HAKIM ABDUL HAMID UNANI MEDICAL COLLEGE
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Re: Circular Flow of National Income - January 19th, 2016

Quote:
Originally Posted by hrakash View Post
Satisfaction of human wants is the basis of economics. In a simple economy there are two sectors. They are (1) Households, (2) Firms.

The circular flow has two aspects. They are as follows:
Real Flow: It represents movement of factor services from the household to the firm and movement of goods and services from the firms to the households.
Money Flow: Representing the money value of the physical exchange involved. Money moves from households to firms when the payment is made for goods and services and from the firms to the households when the payment for the factor services are made. We conclude:-
National Product = National Dividend = National Expenditure

Three assumptions are made for explaining this continuous flow of economic activity.
(1) The economy must be a closed economy.
(2) No difference between imports and exports.
(3) No savings at all that is whatever is produced it is distributed or consumed.
Well done akash! It is very nice and important topic. You explained it very nicely. Well, i am also uploading a document which can explain flow of national income in more detail with some good examples.
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File Type: ppt circular_flow_of_income.ppt (173.0 KB, 2 views)
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