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Phases of Circular Flow of Income: Generation, Distribution, and Disposition

The circular flow of income consists of three main phases: Generation, Distribution, and Disposition. In the Generation Phase, firms produce goods and services using factor services. The Distribution Phase involves the flow of factor incomes from firms to households. Lastly, in the Disposition Phase, income received by factors is spent on goods and services, completing the circular flow.

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Phases of Circular Flow of Income: Generation, Distribution, and Disposition

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  1. z Phases of Circular Flow of Income

  2. z Phases of Circular Flow of Income The three different phases in a circular flow of income are Generation, Distribution, and Disposition.

  3. z 1. Generation Phase The first phase of the circular flow of income is Generation Phase. In this phase, the firms produce goods and services by taking the help of the factor services.

  4. z 2. Distribution Phase The second phase of the circular flow of income is the Distribution Phase. In this phase, factor incomes such as wages, rent, interest, and profit flow from firms to the households.

  5. z 3. Disposition Phase The last phase of the circular flow of income is the Disposition Phase. In this phase, the income received by the factors of production is spent on the goods and services produced by the firms

  6. z Hence, through the different phases of the circular flow of income, the income generated in production units of an economy reaches back to the production units and completes the circular flow.

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