Describe the circular flow of income in a two-sector economy without savings and investment.

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Solution

Circular flow of income in a two-sector economy without savings and investment: Participants of the two-sector economy are households and producers. Flow of money from producers to households as payments for the purchase of factor services has been a continuous process. So, there has been the flow of money from households to producers as payments for the purchase of consumer goods and services, This non-stop continuity of inter-sectoral flows is called 'circularity of flows'.

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