Colour Handouts On Circular Flow of Income
Colour Handouts On Circular Flow of Income
Colour Handouts On Circular Flow of Income
in]
Handouts on
CHAPTER - 1.
CIRCULAR FLOW OF INCOME
CBSE EXPECTED WEIGHTAGE = 4 MARKS
THEORIES = 1 QUESTION OF 1 MARK EACH = 1 MARK
1 QUESTION OF 3 MARKS EACH = 3 MARKS
INDEX
S.No. Topics Page No.
1. Meaning of Circular Flow of Income CFI 2
2. Phases of Circular Flow of Income CFI 2
3. Stock and Flow CFI 3
4. Types of Circular Flow CFI 4
5. Circular Flow in a Simple Economy (Two- CFI 5
Sector Economy)
6. Leakages and Injections CFI 6
Note: This handout contains 7 pages.
CFI 1
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
Presented By – TGE Classes
Mobile No. – +918287656283
[Assistant Professor, BYJU’S Subject Expert, B.Com. (H), M.
Com., 3 Times UGC-NET Qualified, Pursuing C.A. and C.S.]
: [email protected] : www.tgeclasses.in
1. Meaning of Circular Flow It refers to
of Income cycle of generation of income in the production
process,
its distribution and finally,
its circulation from households to firms in the form of
consumption expenditure on goods and services
produced by them.
2. Phases of Circular Flow Generation Phase – In this phase, firms produce goods and
of Income services with the help of factor services.
Distribution Phase – This phase involves the flow of factor
income (rent, wages, interest and profit) from firms to the
households.
Disposition Phase – In this phase, the income received by
factors of production, is spent on the goods and services
produced by firms.
CFI 2
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
3. Stock and Flow 1. What are stock variables? (CBSE D 2012, 2016, AI P P
2011) r r
2. Define flow variable. (CBSE 2011, AI 2012, 2016) o o
3. Distinguish between stocks and flows. Give an f f
example of each. (CBSE AI 2013, F 2010) i i
4. Which of the following is not a flow? (CBSE D C t t
2015)
(a) Capital. (c) Investment & &
(b) Income (d) Depreciation
5. Which of the following is a stock? (CBSE AI C 2015) L L
(a) Wealth. (c) Saving o o
(b) Exports (d) Profits s s
6. Which of the following is a flow? (CBSE D C 2016) s s
(a) Deposits in a bank (c) Capital
(b) Depreciation. (d) Wealth A A
7. Which of the following is a stock? (CBSE AI C 2016) / p
(a) Savings c r
(b) Consumption of fixed capital .
(c) Production
(d) Capital. A
8. Flow of goods and services and factors of production /
across different sectors in a barter economy is c
known as: (CBSE Sample Paper 2016)
(a) Circular Flow (c) Monetary Flow
(b) Real Flow. (d) Capital Flow
CFI 3
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
CFI 4
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
firms and households. households
Kind of It involves exchange of It involves exchange of
Exchange goods and services. money.
Difficulty There may be There is no such
in difficulties of barter difficulty in case of
Exchange
system in exchange of money flow.
goods and factor
services.
Alternative It is also known as It is also known as
Name Physical Flow. Nominal Flow.
Diagram
5. Circular Flow in a Simple 1. Explain the circular flow of income. (CBSE, D 2003,
Economy (Two-Sector 2009, 2013, D C 2014, 2015, AI C 2016)
Economy)
A simple economy assumes the existence of only two sectors,
i.e. household sector and firm sector.
CFI 5
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
The outer loop of diagram shows the real flow, i.e. flow
of factor services from households to firms and
corresponding flow of goods and services from firms to
households.
The inner loop shows the money flow i.e., flow of factor
payments from firms to households and the
corresponding flow of consumption expenditure from
households to firms.
CFI 6
[Presented By- The Global Educationalist | TGE Classes, Mobile: +918287656283, E-mail: [email protected]]
income.
Examples of 1. Two-sector 1. Two-sector
Leakages in economy economy
Different Types (without (without
of Economies Financial Financial
Market) = No Market) = No
Leakage Injection
2. Two-sector 2. Two-sector
economy (with economy (with
Financial Financial
Market) = Market) =
Savings Investment
Note: Equilibrium is achieved when Injections are equal to
Leakages.
END OF NOTES
CFI 7