What is Circular Flow of Income. The circular flows of income refers to the flow of payments and receipts for factor services and for currently produced output passing between domestic firms and households. In other words, it describes the flow of payment from businesses to households in exchange for labour and other productive services and the return flow of payments from households to businesses in exchange for goods and services.
How to determine circular flow of income
To make discussion on circular flows of income simple, a two sector economy, which involves households and firms, will be used. The households supply factors of production (input) to firms which need them for production purposes. In return, they are paid wages, interest, rents and profits, which constitute their income. The members of the households use their incomes to purchase goods and services produced by the firms.
This pattern of consumption expenditure made by households constitutes income for firms. This process leads to the formation of an income flow. The firms again use the income to purchase the productive service of households. Income, therefore, continues to flow in a circular flows of income. While income flows in one direction, goods and services produced by the firms and the productive services of households flow in the other direction.
FACTORS AFFECTING CIRCULAR FLOW OF INCOME
As seen in the circular flows of income and income determination theory, there are a whole lot of factors that influence the flow of income any nation. So here are a few of the factors that affect the flow of income
How savings influence the circular flow of income: This constitutes part of income which is not consumed immediately. They have the tendency to reduce the expenditure of the households and firms
- Injection of funds can affect circular income flow: Injection to fund into the circle is an increase in the incomes of (2) households and firms beside their normal processes of selling productive resources and manufactured goods.
- Taxes: Taxes tend to reduce the volume of fund in circulation as it reduces the expenditure of firms and households.
- Withdrawal: Withdrawal tends to reduce the amount of fund in the circular flow of income.
- Aids and grants: Aids and grants from government or other sources increase
the volume of fund in the circular flow of income.
- Import and export: While imports involve expenditure on foreign made (1) goods and services leading to withdrawals from circular flow of (2) income, exports provide funds leading
to injection into the circular flow
- How Investment affects income flow: Investments created an (3) additional income, leading to injection
into the circular flow
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49. FORAGE CROP AND PASTURE
50. FORAGE GRASSES
53. TYPES OF PASTURE
COMMON GRASSES AND LEGUMES
56. ESTABLISHMENT OF PASTURES
57. 201ECONOMIC REFORM PROGRAMMES IN NIGERIA
58. HAY SILAGE
59. FORESTRY IMPORTANCE OF FORESTRY 206. FOREST MANAGEMENT FOREST REGULATION DEFORESTATION AFFORESTATION
60. DISEASES AND PESTS OF CROPS
61. MAIZE SMUT
62. RICE BLAST
63. MAIZE RUST
68. CASSAVA BACTERIA BLIGHT
69. BLACK ARM BACTERIA BLIGHT OF COTTON
70. TOMATO ROOT KNOT
71. DAMPING-OFF OF TOMATO
72. ONION DOWNY MILDEW
73. STORED PRODUCE MOULD
74. PESTS OF CROPS
75. STEM BORERS
76. ARMY WORM
77. COCOA MIRIDS(CAPSIDS)
79. WHITE FLY SEED BUGS
80. CASSAVA CULTIVATION
81. CASSAVA MEALYBUGS
82. VARIEGATED GRASSHOPPER
83. GREEN SPIDER MITE
84. COTTON STAINER
86. PESTS OF VEGETABLES
89. LEAF ROLLER
90. BEAN BEETLE
91. RICE WEEVILS
92. . PROBLEMS WITH PESTS CONTROL