Concept of Injections.

Injection

Meaning:-It is an addition to the circular flow of income. It increases the size of circular flow.

Injection = I+G+K

I=Investment 

G=Government purchase 

K=Exports 

(Expansion)

Leakages

Meaning:-It is a withdrawl from a circular flow of income. It reduces the size of circular flow.

Leakages=S+T+M

S=Savings 

T=Tax

M=Imports

(Contraction)

For stability in income 

L=S

Or

S+T+M = I+G+K

                     

Significance of circular flow .

Significance of  circulars flow.

Following are the reasons for significance of circular flow:-

(1).Knowledge of Independence:-circular flow make help to understand interdependence between difference sectors of the economy.

Example:-  it tells us about the interdependence between producers and hospitals.

(2).size of econome:-The magnitude of circular flow determines the size of National income. More the magnitude more is the National income and vise versa.

(3).Level of economic activity:-circular flow through its information on various macro variables, tells about the level of economy. This activity in the economy. This activity include investment, production, distribution and consumption of goods and services of levels.

(4). Injections and Lekages:- circular flow gives us information on injection like investment government spending expants lekages like stalking for  and Impact.

Four sector of the economy.

The four Sectors of the Economy. 

From the macro point of view, economy is divided into four Sectors such as:-

• Household sectors:- consumer goods and services households are the owners of the factors  of production.
• Producer sectors:- Including those engaged in production activities  (land, Labour, capital expenditure, etc..)
• Government sectors:- Acting as a welfare agency in maintaining law and order defence and other services  of public welfare.
• The external sectors:- or raw rest of the would  engaged in exports and imports of goods and services and flow of capital between the domestic country and other countries of the world.

Circular flow of income.

Circular flow of income. 

Meaning:- It refers to the flow of money. Income or the  flow of goods and services across different sections of economy in a circular flow.

Types of circular flow.

(1). Prodect flow (real flow).

• Factor flow  (flow of factor flow).
• Product / Goods flow  (flow of goods and services).

(2). Income flow  (monetary flow).

Product flow 

Meaning:- it refers to the flow factor services and flow of goods or services. It also called output flow or real flow.

Product flow 

Meaning:- it refers to money flow in the form of factor payments and consumption expenditure.  It is also called money flow.

The expenditure on goods and services take the form of exxpenditure flow. 

Gross investment, Net investment and the concept of Depreciation.

Gross investment,

Net investment 

and

The concept of Depreciation. 

Gross investment:- Expenditure on the purchase of fixed assets during the accounting year  plus Expenditure on the inventory stock during the accounting year.

# point to remamber:- unsold stock of Goods with the producers is considered as purchase made by the producer themselves  accordingly. It is a part of total expenditure or the inventory stock.

Net investment = Gross investment- Depreciation.

"Net investment implies net addition to the stock of capital. It enhances production capacity of the producers."

Description  (Consumption of fixed capital)

(1) wear and tear charges.

(2) Normal rate of accidental damage.

(3) Expected or forseen absolance.

• Natural calamities like earthquake, price, etc.
• Fall in the margin value of assets when twice is economic reasons.

Loss of the value of fixed assets.

Unexpected absolance:- It is called capital loss of Depreciation or depreciation reserve fund.

Depreciation Reserve Fund:-

Example:- if a machinery purchased for R.S.10,00,000 and the expected life time is 10 years then annual provision for fund to replace then after 10 years = 10,00,000% = 10,00,000 .

This is called Depreciation Reserve Fund.

Investment

Investment 

Meaning:- Investment is a process of capital formation, or a process of increase in the stock.

I  = Investment 

K = Capital 

K'= Change in                     capital

Increase in the stock of capital during the year is called investment,changing the year.

I=k'

Capital formation 

Meaning:- Change in the stock of capital is also called capital formation.

Capital formation contains:-

• Fulid investment. Example:- plant and machinery.
• Inventory investment. Example:- (1)furnished goods.                          (2)semi furnished goods.                (3)Raw materials.

" Change in the inventory stock during the year is called inventory investment of the producer."

 

Stock and flow.

Stock 

Meaning:- stock is a quantity measured at a particular point of time.

# Example:- On 1st Jan. 2020 there may be RS. 50000/- in your bank A/C. Capital 's quantity of money are reliable example of stock.

Flow

Meaning:- Flow is a quantity measured over a specified period of time.

# Example:- suppose you are getting RS. 1000/- per month as pocket balance you may spending RS. 20/- every day in the month  you may getting 75% annually intrest on your bank deposits.

Income, Expenditure, Intrest are reliable example of Flow variables.