Explain briefly what is Circular Flow Of Income.

Circular Flow Of Income Definition:-

  • Refers to the flow of payments and receipts between domestic firms and domestic households. Money pass from households to firms in return of goods and services produced by the firms and money passes from firms to household in return for the factor services provided by households.

  • The money value of the income of household must equal to the money value of output of firms and money value of household expenditures for purchasing this output is the basis for national income accounting.

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