Question

What Is the Importance of Circular Flow of Income?

Answer 1

Circular flow of income is important due to the following reasons:

1. Circular flow of income helps in studying the problems of disequilibrium and restoration of equilibrium.
2. It establishes a link between the producer and the consumer.
3. It helps in the study of leakages and inflows
4. It forms the basis of the Keynesian multiplier.

Also read:

• Circular Flow of Income and Methods of Calculating National Income

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