Circular Flow of Income and Expenditure

Circular Flow of Income and Expenditure:-

It refers to the process where by the National income and expenditure of an economy flow in acircular manner continuously through time the various components of national income and expenditure such as Savings, investment , taxation, government expenditure etc,are shown on diagrams in the form of current and cross current in such a manner that national income equals national expenditure.

                                 In as simple hypothetical economy where there are only two sector, household and business. The household sector owns the factor of productions (land labor and capital) , receives income by selling services to the business sector. The business sector consists or consumers and household sector buys the output of products of business sector.

Circular Flow of Income and Expenditure