Class 12 Economics Solutions

What is meant by circular flow of income? Distinguish between Real flow and Money flow

Question 3. What is meant by circular flow of income? Distinguish between Real flow and Money flow.
Class  Class 12
Subject Economics (Macroeconomics)
Category Sandeep garg Macroeconomics Class 12 Solutions

Q.3 What is meant by circular flow of income? Distinguish between Real flow and Money flow.

Solution:-

Circular flow of income represents the flow of money among the different sectors of an economy.

In two sector model, The Circular flow of income depicts the flow of money between household and firms. Households receive payments for the factor services and use that money for consumption expenditure. Whereas, firms produces goods and services with the help of factor services and make factor payment to the households.

BASIS REAL FLOW MONEY FLOW
Meaning Real Flow refers to the flow of factor services from household to firms and flow of goods and services from firms to households. Money Flow refers to the flow of factor payments to household by firms and flow of consumption expenditure from household to the firms.
Other Name It is also known as Physical Flow. It is also known as Nominal Flow.
Involvement of Money No money is involved in this flow. It involves exchange of money.
Magnitude of Growth process This flow determines the magnitude of growth process in economy. This flow does not determine the magnitude of growth process in the economy.

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Sandeep Garg Macroeconomics Solutions

Short Questions Solutions

  1. Explain Circular flow of income in two sector economy.
  2. What are the different phases of a circular flow of income.
  3. What is meant by circular flow of income? Distinguish between Real flow and Money flow.
  4. “Households and Firms depend on each other in the circular flow of income. Justify the statement in case of a two-sector model.
  5. Distinguish between Stock and Flow. Give an example of each.
  6. Discuss briefly, the circular flow of income in a two sector economy with the help of a suitable diagram.

Long Questions Solutions

  1. Briefly discuss the money flow and the real flow of income.
  2. Describe the circular flow of income in a two-sector economy (without financial market).
  1. Distinguish between Factor income and Transfer income.
  2. Distinguish between Final goods and Intermediate goods.
  3. Machine purchased is always a final good.” Do you agree?
  4. Which of the following expenditure are Intermediate or Final goods?
  5. Discuss the meaning of Consumption goods and Capital goods.
  6. Distinguish between Consumer goods and Capital goods.

Short Questions Solutions

  1. State three objectives of a government budget
  2. Explain objective of stability of prices of government budget
  3. How can a government budget help in reducing inequalities reducing inequalities of income? Explain.
  4. Explain the ‘allocation of resources’ objective of Government budget.
  5. What is a government budget? Name two sources each of non-tax revenue receipts and capital Receipts.
  6. What is a government budget? Give the meaning of: (a) Revenue deficit; (b) Fiscal deficit.
  7. What are the two broad divisions of receipts of the government budget? Name two sources of each kind of receipt.
  8. Define tax revenue. What are the two kinds of tax revenues? Give two examples of each.
  9. Distinguish between Direct Tax and Indirect Tax
  10. Explain with the help of suitable examples the basis of classifying taxes into direct and indirect taxes
  11. Distinguish between revenue receipts and capital receipts
  12. Give meanings of Capital receipts and Revenue receipts with an example of each.

Long Questions Solutions

  1. Define Government budget. Explain the various objectives of a government budget.
  2. What is meant by non-tax revenue? Explain the different sources of non-tax revenue
  3. What is meant by budget expenditure? Distinguish between revenue expenditure and capital expenditure.
  4. What is the meaning of revenue receipts? What are the two main sources of revenue receipts?
  5. Discuss the meaning of following deficits: (i) Revenue Deficit; (ii) Fiscal Deficit; and (iii) Primary Deficit.
  6. Distinguish between: (a) Direct Tax and Indirect tax (b) Primary deficit and Revenue deficit
  7. Distinguish between the following (a) Revenue receipts and Capital receipts (b) Revenue deficit and Fiscal deficit