Explain the circular flow of income.

Solution:-

The circular flow of income refers to the flow of money or the flow of goods and services across the different sectors of an economy in a different form.
Three phases of circular flow are- 
 
Phase of production : it means the production of goods and services by the producers' sector. 
 
Phase of distribution : it corresponds to the flow of income in terms of rent, interest, profit, and wages from the producer sector to the household sector and 
 
Phase of deposition : it refers to the expenditure on the purchase of goods and services by the households and the other sectors.  
 

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