Suppose that in a two sector economy the value of finished goods is eq

1.	Suppose that in a two sector economy the value of finished goods is equal to ₹100 crore and the income generated as factor rewards is also equal to ₹100 crore. The households spend only ₹80 crore. 1. What will happen to the circular flow?2. Which system can be introduced to correct the circular ow? 3. Name the leakages and injections.
Answer» 1. There will be a mismatch between the real flow and money ow in the circular flow. In other words, the flow will be broken. 2. As a corrective measure, the financial system can be introduced. 3. The leakages is the difference between the income generates and household spending. This is saving. The injection are the savings that the households, firms and the government take from the financial institutions as borrowings.

Suppose that in a two sector economy the value of finished goods is equal to ₹100 crore and the income generated as factor rewards is also equal to ₹100 crore. The households spend only ₹80 crore. 1. What will happen to the circular flow?2. Which system can be introduced to correct the circular ow? 3. Name the leakages and injections.

Answer»

1. There will be a mismatch between the real flow and money ow in the circular flow. In other words, the flow will be broken.

2. As a corrective measure, the financial system can be introduced.

3. The leakages is the difference between the income generates and household spending.

This is saving. The injection are the savings that the households, firms and the government take from the financial institutions as borrowings.