What is Real Flow in Economics and 4 Examples


What is Real Flow in Economics and 4 Examples

What is Real Flow in Economics and 4 Examples 960 639 refilwe

What is Real Flow in Economics and 4 Examples: Real Flow in Economics refers to the flows of goods and services. These are real because they consist of actual goods and services. When factor services (services of land, labour, capital, enterprise) flow from household to firms which require them for producing goods and services, these are called real flows. Similarly, when goods and services produced by firms flow from producing enterprises to households who buy them for satisfying their wants, these are also real flows. Such flows are continuous and there is no beginning point or ending point in these flows.

Money flow and real flow are the two main aspects of the circular flow of income economic model. Both refer to exchanges of goods and services for money, but the two concepts differ in how they refer to the opposite sides of these exchanges as they relate to individuals and companies.

4 Examples of Real Flow:

  • services of land,
  • labour,
  • capital,
  • enterprise

5 Differences Between Real Flow and Money Flow

Let us understand the difference between real flow and money flow, in the elaborated form:

  1. Real flow involves the flow of factor services from the owners (households) to producers (firms) and a corresponding flow of goods and services from the producers (firms) to consumers (households). Conversely, we all know that flow of factor services generates factor income, i.e. rent, wages, interest and profit, from the firm to the households, and a corresponding flow of consumption expenditure takes place from the household to the firm.
  2. Real flow is also termed as physical flow because in real flow there is an actual movement of goods and services between households and firms. On the contrary, money flow is alternately known as nominal flow, because the transactions take place, using money as a medium of exchange.
  3. In case of real flow, the movement of factor services, and goods and services, takes place in a clockwise direction, but in case of money flow, the movement is reversed, and so the flow takes place in an anticlockwise direction.
  4. Real flows involve the flow of factors of production, i.e land, labour, capital and enterprise and in turn, the firms supply final goods and services to the consumers so as to satisfy their demand. As against, in case of money flow remuneration is provided to households by the firms for factor services in the form of rent for land, wages for labour, interest for capital employed, and profit for enterprise and in return, consumers spend the money to buy goods and services from the firms.
  5. In a money flow, money is used as a medium of exchange, which facilitates transactions, by valuing them in monetary terms. In contrast, in real flow money is not used as a medium of exchange, rather physical flow of factors of production and goods and services takes place. Therefore, the drawbacks of the barter system may take place. Source: https://keydifferences.com/difference-between-real-flow-and-money-flow.html#Examples
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