REAL FLOW AND MONEY FLOW : 

Q.5 Write a short note on real flow and money flow. 

Ans : 

REAL FLOW : 

Real flow is also known as “Physical Flow”. Real flow refers to the flow of factor services from households to firms and the corresponding flow of goods and services from firms to households. Real flow refers to product flow and factor flow. In product flow, there is a flow of goods and services from firms to households. In factor flow, there is a flow of factors of production like land, labour, capital and entrepreneurship from households to firms. 

MONEY FLOW :

Money flow is also known as “Nominal Flow”. Money flow refers to the flow of factor payments (incomes) from firms to households for their factors services and the corresponding flow of consumption expenditure from households to firms for purchase of goods and services produced by firms. Money flow refers to income flow and expenditure flow. In income flow, households get factor incomes (in the form of rent, wages, interest and profit) from the firms as they provide factor services (land, labour, capital and entrepreneurship) to the firms. In expenditure flow, households make consumption expenditure on goods and services produced by the firms. From the above discussion it can be concluded that real flow consists of real macro variables such as goods and services as well as factor services. Similarly, money flow consists of money macro variables such as factor payments and consumption expenditure. Real flow and money flow more in opposite direction. And these two flows are related with each other as shown in following figure : Household Sector Business Sector Factor Services Goods and Services Household Sector Business Sector Factor Payments Consumption Expenditure Household Sector Business Sector Factor Services Consumption Expenditure Factor Payments Goods and Services 

 DIFFERENCE BETWEEN REAL FLOW AND MONEY FLOW :

Real Flow Money Flow 

1. 1. It consists of factor flow and product flow 1. It consists of income flow and expenditure flow 
2. 2. It involves exchange of factors of production and goods and services 2. It involves exchange of money in the form of factor payment and consumption expenditure 3. 
3. It applies to a barter economy 3. It applied to monetized economy 
4. 4. Difficulties of barter system are involved in case of real flow 4. No such difficulties are involved in case of money flow . 
5. It is also known as Physical Flow 5. It is also known as Nominal Flow WITHDRAWALS AND INJECTIONS :