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Circular flow of income

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The circular flow means the unending flows of production of goods and services, income and expenditure in an economy. It shows the redistribution of income in a circular manner between the production unit and households.

These are Land, Labour, Capital and Entrepreneurship

  • The contribution made by fixed natural resources (called ‘land’), payment for which is called ‘rent’
  • The contribution made by a human worker (labour), payment for which is called ‘wage’.
  • The contribution made by capital, payment for which is called ‘interest’.
  • The contribution made by entrepreneurship, payment for which is ‘profit’.

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