1. BY:
HARI .C ( 22MBR025)
HARI PRASANTH .S(22MBR026)
HARI PRIYA .V (22MBR027)
HARIHARAN .K (22MBR028)

2. • The term circular flow of income or circular flow of
economic activity refers to a simple economic model which
describes the circulation/flow of income between producers
and consumers.
• In the circular flow model, producer is referred to as firms
and consumer are referred to as households.
• The major exchanges are represented as flows of money,
goods and services, etc

4. Household Firm
Government
Foreign sector

5. Includes All Individuals
It provides factors of Productions
Land
Labour
Capital
Entrepreneurship
Consumes Goods and services and Make payment for the
same
Household

6.  An organization that produces goods and services for sale.
 Uses resources provided by households to produce goods and
services
 Sells those good and services for income
 The two main functions are as follows:
 Produce goods and services and supply them in the market
 Make factor payments to the household sectors such as wages,
rent, etc
Firm

7.  Just like households and firms the government also earns incomes
and makes expenses.
 Two major functions are:
1. Government earns revenue from either tax or non tax sources
both from households and firms.
2. Government provides essential public services such as
maintenance of law and order, defense services, judiciary etc.
Government

8.  It consists of two kinds of international economic
transactions i.e.
 Export and import of goods and services
 Inflow and outflow of capital.
Foreign sector

9.  Household inflow is an essential component of the Circular-
Flow Model, as it represents the purchasing power that
households have to consume goods and services. This
consumption, in turn, generates revenue for firms, which they
can use to pay for factors of production such as labor, capital,
and land

10.  The household outflows in the circular flow model include:
 Income from employment: This is the most common inflow in households and
includes salaries, wages, and bonuses earned from employment.
 Income from business: Some households run their own businesses or are self-
employed, and their income comes from the profits earned from their ventures.
 Rental income: Households that own property can earn rental income from
tenants.
 Investment income: Households can earn income from investments such as
dividends, interest, and capital gains.

11.  Gifts: Households can receive gifts from family and friends,
which can be in the form of cash, jewelry, or other valuable
items.
 Inheritances: When a family member passes away,
households can receive inheritances in the form of property,
cash, or other assets.
 Alimony or child support: In cases of divorce, households
may receive alimony or child support payments from the other
parent.

12.  Social security benefits: In India, social security benefits are
provided by the government in the form of old age pensions,
widow pensions, and disability benefits, among others.
 Scholarships or grants: Students living in households may
receive scholarships or grants to help them pay for their
education.
 Royalties: Households may receive royalties from intellectual
property such as patents, copyrights, and trademarks

13.  In the circular flow model of the economy, household
outflows refer to the ways in which households allocate their
income and resources within the economy. These outflows are an
important component of the circular flow model, as they help to
determine the overall level of economic activity.

14.  The household outflows in the circular flow model include:
 Consumption: Households spend their income on goods and services produced
by businesses. This represents an outflow of money from households to the goods
and services market.
 Savings: Some portion of the income earned by households is saved, either in
the form of bank deposits, investments, or other financial instruments. This
represents an outflow of money from households to the financial market.
 Taxes: Households pay taxes to the government, which is an outflow of money
from households to the government sector.

15.  Debt repayment: If households have borrowed money, they
must make payments to repay their debt. This represents an
outflow of money from households to the financial market.
 Charitable donations and contributions: Some households
may choose to donate money to charitable organizations or make
contributions to their community. This represents an outflow of
money from households to the non-profit sector.

16.  Food and groceries: Households must buy food
and groceries to sustain themselves and their families.
 Transportation: Households must pay for vehicles,
fuel, maintenance, and insurance to get around.
 Healthcare: Households must pay for healthcare
expenses such as insurance premiums, doctor visits,
and medication.

17.  Education: Households must pay for school fees, textbooks,
and other education-related expenses for their children.
 Personal and household items: Households must purchase
clothing, furniture, appliances, and other items necessary for
daily living.