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
