Now we see that GDP is equally a measure of the income of an economy. Question 6 In the circular flow of income and spending, the main leakages are: a) the foreign sector, the financial sector and taxes b) imports, investments, bank withdrawals, off-shore shares and securities c) imports, savings and taxes 1) a 2) c The correct alternative is [2]. It will be a ten question quiz with four possible answers and one correct answer each. 4. Suppose we add saving and investment to the circular flow. Gross Investment = Expenditure on the Purchase of Fixed Assets in an Accounting Year + Expenditure on the Inventory Stock in an Accounting Year. flashcard set{{course.flashcardSetCoun > 1 ? To earn an income, households must therefore take part in the production of goods and services. at TopperLearning.. ■ GDP & GNP. A leakage means withdrawl of a part of income (money) from circular flow of income.For instance, savings and taxes by households and firms as well as import payments are forms of leakage. (iii) Injections: It means introduction of income into the flow when households and firms borrow the savings, they constitute injections. expenditure on fixed assets or on inventory stock. 5. 7. (iii) Expenditure in terms of consumption and investment. Circular Flow Of Income Class 12 Macroeconomics Sandeep Garg's Solutions include the continuous production of goods and services, total expenditure, and final income in an economy. savings (S) in banks accounts and other types of deposit (2) Paid to the government in taxation (T) e.g. (iii) Gross Domestic Product: It is a flow as it is the market value of final goods and services produced within the domestic territory during a period of time. What do you mean by Circular Flow of Income? Stock variables are defined as any quantity measured at a particular point of time. income tax and national insurance; 3.Spent on foreign-made goods and services, i.e. This quiz will test the knowledge acquired by students during the lecture periods focused on the circular flow of the market economy. Add in Government Sector) as presented in the virtual/remote lecture.… (All India 2013), 6.Give reasons and categorise the following into stock and flow   These important questions will boost your exam performance. flashcard set, {{courseNav.course.topics.length}} chapters | | 1 Investment is also particularly important as it triggers off the multiplier effect due to it being an injection into the circular flow. (iv) Leakages: It refers to the withdrawal from the flow, when households and firms save part of their incomes, it constitutes leakage. It is the loss of value of fixed assets in use on an account of normal wear and tear, normal rate of accidental damages and expected or foreseen obsolescence. Flow: These are defined as any quantity measured per unit at a particular period of time. 3. 80% average accuracy. Related: Extra Question’s - Introduction and Circular Flow of Income and Product - Economics, Class 12 are solved by group of students and teacher of Commerce, which is also the largest student community of Commerce. The circular flow then involves financial markets. It is a stock because it is measured at given point of time. {{courseNav.course.mDynamicIntFields.lessonCount}} lessons Circular Flow of Income DRAFT. (ii) Capital : It is a man made means of production. National income, output, and expenditure are generated by the activities of the two most vital parts of an economy, its households and firms, as they engage in mutually beneficial exchange. English, science, history, and more. Concept of Depreciation: It is the loss of value of fixed assets in use on an account of normal wear and tear, normal rate of accidental damages and expected or foreseen obsolescence. 4 months ago. - Definition & History, What is the Dow Jones Industrial Average? imports (M) which flow into the economy This market facilitates the flow of savings from the household sector and investment by businesses. CBSE Class 12 Economics Chapter-National Income and Related Aggregates Important Questions – Free PDF Download. (iii) Savings: Give reasons and categorise the following into stock and flow. According to a simple circular-flow diagram, households and firms interact in [1] Only the goods market [2] Only the factor market [3] Both the factor and goods markets [4] Households and firms do not interact 2. It shows the redistribution of income in a circular manner between production units (firms) and households. It is also termed as new capital formation. Stock: These are defined as any quantity measured at a particular point of time, e.g. The circular flow model demonstrates how money moves through society. (i) Losses: These are those flows as it is measured over a period of time. the sum of unsold goods, semi-finished goods and raw materials) is termed as inventory investment, it is also called as change in stock and calculated as closing stock – opening stock. Depreciation is also called consumption of fixed capital. (i) Gross investment: Gross investment of an economy constitutes that part of our final output that comprises of capital goods, i.e. Define flow variable. CBSE Important Questions for Class 12 Economics Chapter Wise Pdf free download was designed by expert teachers from latest edition of NCERT books to get good marks in board exams. Depreciation Reserve Fund: It is a fund created by the producers to meet the upcoming depreciation losses in the process of production. This means that investment income of £1 billion, for example, can generate more than £1 billion in GDP for the economy. What is Circular Flow of Income? As a member, you'll also get unlimited access to over 83,000 lessons in math, 8. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction. Biological and Biomedical Aggregate demand consists of the amount households plan to spend on goods (C), plus planned spending on capital investment, (I) + government spending, (G) + exports (X) minusimports (M) from abroad. Aug 28, 2019 - Explore Alan (MR.Econman) Long's board "Circular flow of income" on Pinterest. (All India 2011). point of time. Ans: The circular flow of Income refers to the flow … The idea of the … Important Questions on Circular Flow Of Income is available on Toppr. Get free Key Notes, MCQs, Tests, Sample Papers, NCERT Solutions, NCERT Solutions, Important Questions for 12. The circular flow shows that some part of household income will be: (1) Put aside for future spending, i.e. - History & Performance, Accounting vs. Economic Costs: Examples & Comparison, Rolled Throughput Yield (RTY): Definition & Formula, Roll Yield: Definition, Strategy, Calculation & Example, Herd Behavior and Investment in Financial Markets, The Production Possibilities Curve: Help & Review, Comparative Advantage, Specialization and Exchange: Help and Review, Demand, Supply and Market Equilibrium: Help and Review, Inflation Measurement and Adjustment: Help and Review, Understanding Unemployment: Help and Review, Aggregate Demand and Supply: Help and Review, Macroeconomic Equilibrium: Help and Review, Inflation and Unemployment: Help and Review, Economic Growth and Productivity: Help and Review, Central Bank and the Money Supply: Help and Review, Fiscal and Monetary Policies: Help and Review, Foreign Exchange and the Balance of Payments: Help and Review, Inflows, Outflows, and Restrictions: Help and Review, Government & the Economy: Help and Review, Working Scholars® Bringing Tuition-Free College to the Community, The role of firms in the circular flow of income, What saved money is considered to be in a circular flow of income, The role of households and firms in a circular flow of income model. Ans. These are Land, Labour, Capital and Entrepreneurship Flow variables are defined as any quantity measured per unit at a particular period of time, e.g. 8. © copyright 2003-2020 Study.com. manimalathi_53089. (Compartment 2014; Delhi 2009), Circular flow of income refers to the unending flows of production of goods and services, income and expenditure in an economy. … Circular Flow of Income: Circular flow of income refers to the unending flows of production of goods and services, income and expenditure in an economy. It can be better understood with this diagram, Phases of Circular Flow of Income: There are three different phases (generation, distribution and disposal) in circular flow of income, as shown in the given diagram. The circular flow shows that some part of household income will be: 1.Put aside for future spending, i.e. The entire NCERT textbook questions have been solved by best teachers for you. Production of an economy, for example, can generate more than billion... 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