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"Flow of income is circular in a two-sec...

"Flow of income is circular in a two-sector economy". Comment.

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The given statement is defended, i.e., flow is circular in a two sector economy. The income received by households from firms for their factor services is spent by them on purchase of goods and services produced by the firms. Thus, income is equal to disposition. This flow of income continues as production is a continuous process.
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Knowledge Check

  • Two - sector economy consists of :

    A
    Households, firms
    B
    Firms, Foreign sector
    C
    Households, Government
    D
    Firms, Government
  • Which of the following is not true about AD in a two-sector economy ?

    A
    AD = Consumption + Saving
    B
    AD curves starts from some point above the origin
    C
    AD = Consumption + Investment
    D
    AD curve has a positive slope
  • Which of the following is not a component of aggregate demand in a two-sector economy?

    A
    Net Exports
    B
    Government Expenditure
    C
    Consumption
    D
    Both (a) and (b)
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    NDP at factor cost is equal to NDP at markets in a two-sector economy.

    Circular flow of income does not take place in case of closed economy.

    What is the function of households in the circular flow ( two- sector model) ?