Flow of Money Income & its Circular Flow Money flow circular flow of money

Income & its Circular Flow

It is a basic concept about income that money always is in a rotation from one person to another in the form of income & expenditure. There is lot of activity like saving, tax, government exp, investment and import or export, if we add these figure then we are able to find out our National Income from different – 2 method like – income method or expenditure method and we know that our national income is always be equal to national expenditure. 

                                                                                                     

Income flow between business & house hold sector –

We start it from a basic concept that our economic start from two sides – one is house hold and second is business.

Flow of Money

First side, house hold – This side of the economic hold all the production factor like land, capital or man power etc. house hold use these production factor in production process and get rent on land, interest on capital and wages or salaries on manpower etc. so these sector sale their services and earn income. This side has the consumption and buys all the goods & services which are produces.

Second side, business sector – These sectors have the idea and produce the goods & services and sale these production to the house hold and earn money. Or other way, we can say that the house-hold is the entire market for business sector. They buy the entire production factor from house hold and pay them (rent, interest, wages or salaries) for this. So, there is a continue flow of money from one another at every time.

Assumption –

ü  House-hold spent all his income on goods & services

ü  Total production is always be equal to total sale or consumption

ü  There is no saving by business sector