Significance of Study of Circular Flow of Income
1.Measurement of National Income- National income is an estimation of aggregation of any of economic activity of the circular flow. It is either the income of all the factors of production or the expenditure of various sectors of economy. However, aggregate amount of each of the activity is identical to each other. 2.Knowledge of Interdependence- Circular flow of income signifies the interdependence of each of activity upon one another. If there is no consumption, there will be no demand and expenditure which infacts restricts the amount of production and income. 3.Unending Nature of Economic Activities- It signifies that production, income and expenditure are of unending nature, therefore, economic activities in an economy can never come to a halt. National income is also bound to rise in future. 4.Injections and Leakages Reference- A General Approach to Macroeconomic Policy.
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