Explain circular flow of income in 2 sector economy?
Monday, February 27, 2023
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Question: Explain circular flow of income in 2 sector economy?
In a two-sector economy, the circular flow of income model shows the flow of money and goods between households and firms. Households supply labor and other factors of production to firms, which use these inputs to produce goods and services. Firms pay wages, rent, and other forms of income to households in exchange for their inputs. Households use this income to purchase goods and services from the firms. This creates a circular flow of income and production, where money flows from households to firms and back to households again as income. This model assumes that all income is spent on goods and services, and that there is no government intervention or foreign trade.
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