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Macroeconomics: Theory and Policy by Vanita Agarwal

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2

The Circular Flow of Income and Expenditure

After studying this topic, you should be able to understand

  • In a two sector economy, the sum total of the factor incomes earned by the households is equal to the total of the expenditures by the households on the goods and services.
  • There exist withdrawals and injections, which prevent the circular flow of income and money from remaining constant.
  • The main source of revenue for the government is through taxes.
  • The government may follow a balanced, deficit or a surplus budget.
  • A flow of income may exist between the government sector and the capital market.
  • The import and export of goods and services influence the circular flow of income.
  • In general, the exports of a country are rarely equal to the ...

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