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    				| 1. | What is circular flow of income in two sector economy with financial systemProper presentation | 
| Answer» Answer: The FACTOR OWNERS spend this income on goods which leads to a circular flow of income. This basic circular flow of income model consists of SIX ASSUMPTIONS: The economy consists of two sectors: households and FIRMS. Households spend all of their income (Y) on goods and services or consumption (C). | |