Difference between real and monetary flow.

Dear student Real Flow- Household sector provides factor services i.e. land, labour and capital to the firms and the firms in turn provide them with the produced goods and services. This flow of factor services from the household sector to the firms and the corresponding flow of goods and services from the firms to the households is called the real flow. Thus, it can be said that the product flow consists of the following two parts. a. Factor Flow (flow of factor services) from the household to the firms b. Product Flow (flow of goods and services) from the firms to the households. Money Flow- In every modern economy, money is the medium of exchange. When the households provide factor services to the firms, in return they receive factor payments. Land receives rent, labour receives wages and capital receives interest. In other words, the households receive money income in return of their factor services. The factor payments received by the household is then spent on goods and services produced by the firms. This expenditure on goods and services forms the money income of the firms. Thus, there is a circular flow of money/income between the households and the firms. Regards