What is meant by Circular Flow of Income? Distinguish between Real Flow and Money Flow (Class 12)
What is meant by Circular Flow of Income? Distinguish between Real Flow and Money Flow (Class 12)
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What is meant by Circular Flow of Income?
It refers to cycle of generation of income in the production process, its distribution among the factors of production and finally, its circulation from households to firms in the form of consumption expenditure on goods and services produced by them.
Distinguish between Real Flow and Money Flow
| Basis | Real Flow | Money Flow |
| Meaning | It is the flow of goods and services between firms and households | If is the flow of money between firms and households |
| Kind of exchange | It involves exchange of goods and services | It involves exchange of money. |
| Difficulty in exchange | There may be difficulties of barter system in exchange of goods and factor services | There is no such difficulty in case of money flow. |
| Alternative Name | It is also known as Physical Flow | It is also known as Nominal Flow. |
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