Topic: Flow

Name: Adarsh Bansal

Class: XII Commerce
Beta
 FLOW
● A flow is a quantity measured over a
specified period of time.
● Eg. Income, Expenditure of Money,
Capital Formation, Interest on
capital.
● Flow refers to the value of a variable
during a period of time.
● Flow is time dimensional. It is
measured per hour, per month or per
year.
● Flow impacts the stock. Greater the
 INTERSECTORAL FLOWS
● Each sector of the economy
depeneds on the other in one way or
the other. This is called intersectoral
interdependence.
● Intersectoral interdependence leads
to intersectoral flows, either in the
form of goods and services or in the
form of money.
TYPES OF INTERSECTORAL
FLOWS

1. REAL FLOW
2. MONEY FLOW
 REAL FLOW
● It refers to the flow of goods and
services among different sectors of
the economy.
● Eg. Flow of factor services from
household sector to the producer
sector or the flow of goods and
services from the producer sector to
the household sector.
● Let us consider a simple economy
consisting only of 2 sectors:
➢ Producer Sector
➢ Household Sector
● These two sectors are dependent on
each other in the following ways:
➔ Producers supply goods and services
to the households.
➔ Households supplies factors of
production to the producers.
 MONEY FLOW
● Money flows refer to the flow of
money across different sectors of the
economy.
● Eg. Flow of factor payments by the
producer sector to the household
sector and flow of money from the
household sector to the producer
sector.
● Let us consider a simple economy
consisting only of 2 sectors:
➢ Producer Sector
➢ Household Sector
● These two sectors are dependent on
each other in the following ways:
➔ Flow of money from households to
the producers for the purchase of
goods.
➔ Flow of money from the producers to
the households for the purchase of
factor services.
CIRCULAR FLOW OF INCOME
● It refers to the unending flow of the
activities of production, income
generation and expenditure
involving different sectors of the
economy, the producers and the
households in particular.
● Each activity is the cause as well as
the consequence of the other
activity.
THREE PHASES OF CIRCULAR
FLOW

1. Phase of Production
2. Phase of Income
Generationn
3. Phase of Disposition
 PHASE OF PRODUCTION
● Production refers to 'value addition'.
● Production in the producing sector
generates income for the households
who are owners of the factors of
production.
● Eg. When wood worth Rs. 5,000 is
converted into chairs worth Rs.
10,000 , there is value addition
worth Rs. 5,000. This is what
production means.
 PHASE OF INCOME
GENERATION
● For rendering factor services to the
producers, the households get factor
payments: rent for land, interest for
capital, wages/salaries for labour
and profit for entrepreneurship.
● From households view, these are
factor incomes. Thus, in phase 2 of
circular flow, there is generation of
income as a consequence of the
production of goods and services in
phase 1.
 PHASE OF DISPOSITION
● Income is spent or disposed of on
the purchase of final goods and
services. When households buy the
final goods, there is consumption
expenditure.
● Thus, in phase 3, there is disposition
of income as a consequence of the
generation of income in phase 2.
Thank You