Describe the circular flow of income in a two-sector economy (without financial market)

Dear Student,
In such an economy , the household sector owns all the factors of production. This sector sells the factor services to the firms and receives income from them in the form of wages, rent, interest and profits. The money payment made by firms to housesolds are cost expenditures for the firms and factor income for the household. Firms or the production units used the factor inputs to produce goods and services which are sold to the households. The household sector pays for these goods in the form of money and thereby firms receive money payment from the households. The interaction of firms and households take place in two sets of market- factor market and product market.
Now, real flows consists of flow of factor services from household to firms and flow of goods and services from firms to households. Money flows comprise flow of factor income from firms to household and flow of money expenditure on goods and services from household to firms. By combining both types of money flows, we find the circularity in the money flows. The money payment go around in a circular manner from the firm to the households and from the household sector the firms.
In the two sector model, if households spend all their incomes on buying consumer goods produced by the firms and firms distribute all the money collected from the sale of their products to households as factor income, then the circular flow of income will remain constant. As the household spends all their income on the purchase of goods and services from the firms. Total money receipt of the firm will be equal to the total income of the household. Similarly total income of the household is equal to the expenditure of the  firms on the purchase of factor services. Everything received by households would be passed on to firms and everything received by firms will be passed back to household. The circular flow of income will continue to operate at unchanged level. In other words there would be equilibrium in the circular flow of income.
Regards

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