circular flow of income 12th

Circular flow of income
Meaning :
It refers to cycle of generation of income in the production process, its distribution among the factors of
production and finally, its circulation from households to firms in the form of consumption expenditure
on goods and services produced by them.


Phases of circular flow of income :
Production phase ---------> Income phase ----------> Expenditure phase
(generation phase ) (distribution (disposition of income)
of income)
Generation phase :
Firm produce goods and service with the help of factor service .

Distribution of income :
It involves rent , wages , profit , interest from firm to household .

disposition of income :
Income received on factor of production and spent on goods and service.




STOCK AND FLOW


It refers to that variable which is measured It refers to that variable which is measured
at particular point of time. over a period of time

It is a static (fixed) concept . It is a dynamic (change) concept .

Example Example
National wealth National income
Population in china 30.08.2016 Population in 2018

It does not have time dimension . It has a time dimension .