The Circular Flow of Output and IncomeCircular Flow of Physical Goods and Money IncomeGoods and Services Factors of Production (land, labor, capital, entrepreneur)

Household Sector

Business Sector

Payments of Factors (rent, wages, interest, profit) Payment of Purchase of goods and services.

The Circular Flow of Goods & Income of Households & Firms with the Government & Foreign CountriesGOVERNMENT Wages, Transfer Payments Taxes Economic Resources Purchase of Goods & Services HOUSEHOLDS Income Payments of Wages, Rent, Dividends, & Interests Goods & Services Money Payments for Imports FOREIGN COUNTRIES Money Payments for Exports PRODUCING UNITS Taxes Purchase of Goods & Services

The circular flow diagram shows the income received and payments made by each sector of the economy.

The Circular Flow of Economic Activity Reflecting The Outflows & The InflowsEconomic Resources Purchase of Goods & Services Income Payments of Wages, Rent, Dividends, & Interests Goods & Services IMPORTS TAXES SAVINGS Foreign Countries Government Banks EXPORTS EXPENDITURES INVESTMENTS

HOUSEHOLDS

PRODUCING UNITS

National IncomeNational income of a country can be defined as the total market value of all final goods and services produced in the economy in a year. There are three methods of computation of National Income Census /product method Income method Expenditure method

Census /product method This is also called output method or production method. In this method the contribution of each enterprise to the generation of flow of goods and services is measured. Economy is divided into different industrial sectors such as agriculture,fishing,mining,construction,manufacturing, Trade and commerce, transport and other services. Income method This method national income is obtained by summing up of the incomes of all individuals of a country. Expenditure method Under this method income can be spent either on consumer goods or capital goods. Expenditure can be made by private individuals and households or by govt. and business enterprises.