Circular Flow of National Income
Let us study with the help of Circular flow of income how flow of goods and services between household and firms are balanced by flow of factor payments made in exchange of them. Circular flow of income in two sector economy where there is no government, no capital market, no foreign sector. Households own all the factors of production, that is land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets. Firms make use of these resources and provide goods and services to the household through product markets.However the exchange of goods and services and factors of production takes place with the help of the financial flows which moves in the reverse direction.As the households purchase goods and services from firms it is their consumption expenditure which in tern becomes income or profits for the firms. On the other hand when firms buy factors of production from the households they pay factor payments in the form of wages, rent, interest.
Read more about this topic: Factor Payments (economics)
Famous quotes containing the words circular, flow, national and/or income:
“‘A thing is called by a certain name because it instantiates a certain universal’ is obviously circular when particularized, but it looks imposing when left in this general form. And it looks imposing in this general form largely because of the inveterate philosophical habit of treating the shadows cast by words and sentences as if they were separately identifiable. Universals, like facts and propositions, are such shadows.”
—David Pears (b. 1921)
“The method of painting is the natural growth out of a need. I want to express my feelings rather than illustrate them. Technique is just a means of arriving at a statement.... I can control the flow of paint: there is no accident, just as there is no beginning and no end.”
—Jackson Pollock (1912–1956)
“Humanism, it seems, is almost impossible in America where material progress is part of the national romance whereas in Europe such progress is relished because it feels nice.”
—Paul West (b. 1930)
“I had always been so much taken with the way all English people I knew always were going to see their lawyer. Even if they have no income and do not earn anything they always have a lawyer.”
—Gertrude Stein (1874–1946)