class 12 cbse macroeconomics circular flow of income handwritten notes

The Circular Flow of Income is a fundamental concept in macroeconomics that illustrates the continuous movement of money and resources between different sectors of the economy. Here’s a brief overview: 1. Basic Concept: The Circular Flow of Income model depicts how income flows between households and firms through markets for goods and services, and the factor markets (labor, capital, etc.). 2. Two-Sector Model: Households: Provide factors of production (labor, capital) and receive income (wages, rent, interest, profit). Firms: Produce goods and services and pay households for their factors of production. 3. Flow of Money: Expenditure Flow: Households spend their income on goods and services produced by firms. Income Flow: Firms pay households for their labor and other resources. 4. Role of Government and Foreign Sector (Expanded Model): Government: Collects taxes and injects spending into the economy. Foreign Sector: Includes exports and imports, affecting the income flow between domestic and international markets. 5. Leakages and Injections: Leakages: Savings, taxes, and imports that reduce the flow of income. Injections: Investments, government spending, and exports that increase the flow of income. These handwritten notes provide a visual and detailed explanation of how income circulates in an economy, emphasizing the interconnections between different economic agents and sectors.