KTU B.TECH SECOND YEAR BUSINESS ECONOMICS [HS200] NOTE - MODULE 4 | IMPORTANT QUESTIONS


BUSINESS ECONOMICS [HS200] NOTE - MODULE 4

KTU B.TECH SECOND YEAR BUSINESS ECONOMICS [HS200] NOTE - MODULE 4  | IMPORTANT QUESTIONS,Business Economics Notes,Business Economics Questions,Business Economics important questions,Business Economics model questions,Business Economics second year notes,Business Economics second year questions,HS200 questions,HS200 notes

1.Define the circular flow of income


KTU B.TECH SECOND YEAR BUSINESS ECONOMICS [HS200] NOTE - MODULE 4  | IMPORTANT QUESTIONS,Business Economics Notes,Business Economics Questions,Business Economics important questions,Business Economics model questions,Business Economics second year notes,Business Economics second year questions,HS200 questions,HS200 notes

Ans. The circular flow of income is a neoclassical economic model depicting how money flows through the economy. In the most simple version, the economy is modeled as consisting only of households and firms. 

Money flows to workers in the form of wages, and money flows back to firms in exchange for products. This simplistic model suggests the old economic adage, "Supply creates its own demand."

TWO SECTOR:

Real flows of resources, goods and services have been shown in Fig. 6.1. In the upper loop of this figure, the resources such as land, capital and entrepreneurial ability flow from households to business firms as indicated by the arrow mark.

In opposite direction to this, money flows from business firms to the households as factor payments such as wages, rent, interest and profits.

In the lower part of the figure, money flows from households to firms as consumption expenditure made by the households on the goods and servicesproduced by the firms, while the flow of goods and services is in opposite direction
from business firms to households.

MULTI-SECTOR

3-SECTOR: It includes household sector, producing sector and government sector.

It will study a circular flow income in these sectors excluding rest of the world i.e. closed economy income

4-SECTOR: A modern monetary economy comprises a network of four sector economy these are:

1. Household sector

2. Firms or Producing sector

3. Government sector

4. Rest of the world sector.

5-SECTOR: In the five sector model the economy is divided into five sectors:[16]

1. Household sector

2. Firms or Producing sector

3. Financial sector : banks and non-bank intermediaries who engage in the borrowing (savings from households) and lending of money

4. Government sector : consists of the economic activities of local, state and federal governments.

5. Rest of the world sector: transforms the model from a closed economy to an open economy.

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