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Money flow is the flow of
  • a)
    Factor payments
  • b)
    Services only
  • c)
    Goods only
  • d)
    Goods and services only
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Money flow is the flow ofa)Factor paymentsb)Services onlyc)Goods onlyd...
Former flow happens in factor market while latter flow happens in goods market. Money flow refers to the flow of factor payments from firms to households and payment for goods and services by households to firms.
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Money flow is the flow ofa)Factor paymentsb)Services onlyc)Goods onlyd...
Inflow and Outflow of Money is called Money Flow. It includes factor payment and factor receipt.
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Community Answer
Money flow is the flow ofa)Factor paymentsb)Services onlyc)Goods onlyd...
Money flow is the flow of factor payments.

Factor payments are the payments made to the factors of production, which include land, labor, capital, and entrepreneurship. These factors contribute to the production of goods and services in an economy. Money flow refers to the movement of money as it is used to compensate these factors of production.

Explanation:

1. Factors of production:
- Land: This refers to the natural resources used in the production process, such as agricultural land, forests, minerals, and water bodies.
- Labor: This includes the physical and mental efforts put in by individuals to produce goods and services. It includes both skilled and unskilled workers.
- Capital: This refers to the machinery, equipment, tools, and buildings used in the production process.
- Entrepreneurship: This involves the innovation, risk-taking, and coordination of resources by individuals to start and manage businesses.

2. Factor payments:
- Rent: This is the payment made to the owners of land for its use in the production process.
- Wages: This is the compensation paid to labor for the work performed.
- Interest: This is the payment made to the owners of capital for lending their funds to businesses.
- Profit: This is the reward earned by entrepreneurs for their innovative ideas and successful management of businesses.

3. Money flow:
- Money flow refers to the movement of money in an economy as it is used to make factor payments.
- When goods and services are produced, factor payments are made to the factors of production involved in their production.
- For example, when a farmer produces crops, he pays rent for using agricultural land and wages to the laborers who work on the farm.
- Similarly, a factory owner pays rent for the land, wages to workers, interest on borrowed capital, and earns profit for taking the risk and managing the business.

Conclusion:
- Money flow is the flow of factor payments in an economy.
- It represents the movement of money as it is used to compensate the factors of production involved in the production of goods and services.
- Factor payments include rent, wages, interest, and profit.
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Direction: Read the below case and answer the questions that follow:Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.Which of the following is not an assumption of a two sector model of Circular Flow of Income?

Direction: Read the below case and answer the questions that follow:Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.Money Flows from __________ to ____________ as factor payments.

Direction: Read the below case and answer the questions that follow:Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.Which of the following is not the significance of Circular Flow of Income?

Direction: Read the below case and answer the questions that follow:Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.Circular flow of income refers to the flow of activities of production, income generation and expenditure involving different ___________ of the economy.

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Money flow is the flow ofa)Factor paymentsb)Services onlyc)Goods onlyd)Goods and services onlyCorrect answer is option 'A'. Can you explain this answer?
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