Elementary Theory of Income Determination – Cash Flow of Income
The total income of a country is a reflection of real capital investment in that particular country. The volume of investment is determined mainly by certain factors. These factors include expectation of entrepreneurs, rate of interest, savings, marginal efficiency of capital, and consumption.
Cash flow of income
The circular flow 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 payments from businesses to households in exchange for labor and other productive services and the return flow of payments from households to businesses in exchange for goods and services.
Some basic factors affecting circular flow are:
1. Savings: This constitute part of income which is not consumed immediately. They have the tendency to reduce the expenditure of the households and firms.
2. Injection: Injection of fund into … Read more