Question

Differentiate between Real flow and Money flow.

Hint:

While real flow deals with the exchange of goods and services, money flow is concerned with the exchange of money for these goods and services.

Answer 1

Real Flow: - Real flow refers to the flow of goods and services in the economy. - It represents the actual physical movement of products and services between producers and consumers. - In the circular flow model, real flow includes the movement of goods and services from firms to households and the movement of factors of production from households to firms. Money Flow: - Money flow refers to the flow of money or payments in exchange for goods and services, or for the use of factors of production. - It represents the financial transactions that occur in the economy. - In the circular flow model, money flow involves the payment of wages, interest, rent, and profit to the owners of factors of production, and the receipt of payments from households in exchange for goods and services.