Question:

(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 30, 2025
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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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