Question:
(a) Discuss briefly the concept of circular flow of income in a two-sector model.
(a) Discuss briefly the concept of circular flow of income in a two-sector model.
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The circular flow demonstrates the interdependence of households and firms, ensuring economic stability.
Updated On: Jan 13, 2026
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Solution and Explanation
Households provide factors of production (labor, capital) to firms and receive factor payments (wages, rent).
Firms produce goods and services, which households purchase using their income, creating a flow of money and goods.
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