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Circular flow of income refers to the unending flow of activities such as production, income generation and expenditure involved in all the sectors of the economy.
Three Phases of Circular Flow
The flows of production, income and expenditure form circularity with no end and beginning. Thus it is called circular flow. Production aspect states the flow of goods and services in the economy or the process of value adding. Income or distribution aspect states the distribution of income in terms of wage, rent, interest and profit. Expenditure or disposition aspect states the disposal of income in terms of consumption expenditure or investment expenditure.
Two-Sector Economy without Financial Market
In a simple economy, there are firms and household sectors economic activity. People from households render factor services to firms and firms hire factor services from households. Households spend their earned income completely on consumption. Products which are produced by firms are sold to consumers. Assume that there is no external trade and government in an economy. Total production of goods and services by firms are equal to the consumption of goods and services by households. Factor payments by firms are equal to the factor incomes of the household sector. Consumption expenditure of household sector is equal to income of the household sector. Money flows are opposite to real flows because factor services flows from households to firms are real flows and the factor payments made by firms to households are money flows.
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Economic development is the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards.
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RBI was granted its role in currency management on the basis of the Reserve Bank of India Act in 1934. Specifically, Section 22 of the RBI Act gives the bank the authority to issue currency notes. The Reserve Bank of India has printing facilities in Dewas, Mysore and Salboni.
Posted by Lucky Bhatt 4 days, 15 hours ago
Impact on foreign exchange rate due to increase in import duty on gold:
The given graph clearly shows that when the demand for foreign exchange decreases, then its price also decrease.
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