What is the flow of money?
Money flows depict the way that money and credit circulate in the economy as income turns into savings and investment and back again.
Real flows depict the way that commodities and products & services are produced and consumed in the economy..
Is income a flow variable?
A flow shows change during a period of time whereas a stock indicates the quantity of a variable at a point of time. Thus, wealth is a stock since it can be measured at a point of time, but income is a flow because it can be measured over a period of time.
How money flows in an economy?
The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money. … For that reason, the model is also referred to as the circular flow of income model.
What are the two basic principles of circular flow of income?
The circular flow of income involves two basic principles: (ii) Goods and services flow in one direction and the money payment to acquire them, flow in the return direction giving rise to a circular flow.
What is the importance of circular flow of income?
1. Link between Producers and Consumers: The circular flow of money establishes a link between producers and consumers. It is through money that producers buy the services of the factors of production with which the latter, in turn, purchase goods from the producers.
How the flow of income is circular?
The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.