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Explain the circular flow of income in a four sector economy? CIRCULAR INCOME FLOW IN A FOUR SECTOR ECONOMY*INTRODUCTION:~ The four sector economy includes households, business firms, financial sector and the government sector.~ The government sector is very important because it affects the working of the economy in a number of ways through public revenue, public expenditure and public borrowings.*ASSUMPTIONS:i) Firms retain some part of their profits i.e. they do not distribute the entire profit earned by them.ii) These retained savings are used by the firms for future investment.iii) Only tax revenue is considered for public revenue.*ILLUSTRATION:*EXPLANATION:~ The above figure depicts the circular flow of income in a four sectored closed economy.~ The four sectors comprise of households, business firms, financial sector and government sector.~ The real flow of income takes place as the households supply factors of production (land, labour, capital and enterprise) to the firms and the firms provide the households with goods and services that are produced by using the above factors of production.~ The money flow of income takes place as money flows firms to...more
Write a note on the circular flow of income in a two-sector economy? CIRCULAR FLOW OF INCOME IN A TWO-SECTOR ECONOMY:*INTRODUCTION:~ The two sector model is highly simplified models with only two sector-i.e. households and firms.~ It illustrates the circular flow of income between these two sectors.*ASSUMPTIONS:i) There are no saving...more
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