Money Flow Vs Real Flow
Real Flow And Money Flow Class 12
Money Flow Definition
Money Flow Stocks
Monthly Money Flows

Distinction between Real Flows and Money Flows are as follows:

Nationwide Lead Access. 5 Lead Gen Websites. All Tools $ 125/mo Try free 14 day trial. Free 14 day trial & 30 Day Money Back Guarantee. Real flow is also known as physical flow. Real flow refers to the flow of goods and services across different sectors of the economy. Flow of factor services from household sector to the producer sector or flow of goods and services from producer sector to household sector are examples of real flows. Answer verified by Toppr. Real flows are actual goods, services and resources flowing from one sector to another, usually in exchange for money through money flows. E.g: Households provide labor to producers (a real flow. Real flow is the exchange of goods and services between household and firms whereas money flow is the monetary exchange between two sectors. In real flow household sector supplies raw material, land, labour, capital and enterprise to firms and in return firms sector provides finished goods and services to household sector.

Unlike a traditional economy where production is mainly for self-consumption, production in modern economy is for exchange or sale. Thus, modern economies have become exchange economies where all exchange activities take place through money. In other words, it is money which acts as a medium of exchange in modern economies. Thus, money flows in the form of income and expenditure among different sections of the society.

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In this context, it will be relevant to know the views of Paul Studenski who states, “National Income is both a flow of goods and services and a flow of money incomes. It is, therefore, called national product as often as national income.” All the flows in an economy can be classified into Real Flows or money Flows. Remember, households are owners of factors of production as well as consumers whereas firms (or producing enterprises) are producers of goods and services.

Real flows:

These refer 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 flows:

These refer to the flows of money in the form of factor payments and consumption expenditure. The money flows occur since it is through money that various transactions are conducted. It is money that facilitates such transactions bringing flows of money from one sector to another.

When factor incomes (rent, wages, interest and profit) flow from firms to households as rewards for their factor services, these are called money flows. Similarly, when households spend their incomes on purchase of goods and services and as result money flows back to firms, these also indicate money flows.

The difference between the real flows and money flows can be explained further with an illustration. Out of three sectors of an economy—household, firm and government—let us for sake of simplicity consider the first two sectors, viz., household and firm. We assume that there is no government, no saving and no investment.

The firm sector hires productive or factor services (land, labour, capital and enterprise) from the households to produce goods and services. This is real flow. The households, in turn, receive factor income (rent, wages, interest, profit) in the form of money from the firm sector. This is money flow.

With the money income thus earned, the households purchase from firms goods and services like food, cloth, house, shoes, educational, medical and banking facilities, etc. for satisfying their wants. This is real flow from firm sector to household sector. In return, the households make payment to the firm sector in the form of money. This is money flow from households to firm sector.

Based on this simplified model, all these flows involved in it are depicted in the following figure. The inner two arrows indicate real flows which show flow of factor services from household sector to firm sector and corresponding flow of goods and services from firm sector to household sector.

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The outer two arrows reflect money flows which show flow of factor payments from firm sector to household sector and the corresponding flow of consumption expenditure from household sector to firm sector.

Basically, there are two types of circular flow of income – Real Flow and Money Flow. The biggest difference between real flow and money flow is that in case of real flow, exchange of goods and services takes place among various sectors of the economy, but when we talk about money flow, the monetary exchange between the two sectors exists.

A two-sector economy is one where only two sectors exist, i.e. the household sector, which represents the consumer group and producer sector which represents firms.

What is Circular Flow of Income?

The ongoing movement or exchange of goods and services and money across various sectors of the economy is termed as Circular Flow of Income:

Principles of Circular Flow of Income

In the process of exchange, the amount received by the seller is equal to the amount spent by the buyer.
In one direction, there is the flow of goods and services, while in the opposite direction there is a flow of money, with respect to the payments for availing the goods and services, which results in a circular flow.

In this post, we will talk about all the important differences between real flow and money flow, using diagram and examples.

Content: Real Flow Vs Money Flow

Comparison Chart

Basis for Comparison	Real Flow	Money Flow
Meaning	Real Flow implies the movement of factors services and a corresponding flow of goods and services amidst the various sectors of the economy.	Money flow implies the cycle of payment in the monetary form, from firms to households and a corresponding monetary payment from households to the firm.
Flow
Alternative Name	Physical Flow	Nominal Flow
Movement	Clockwise	Anticlockwise
Involves	Factors of production flows from households to firms. Concurrently, goods and services are supplied by the firms to households.	Remuneration is provided to households by the firms for factor services. Concurrently, goods and services are purchased from the business sector by the households.
Use of money	Exchange of goods and services without the use of money.	Exchange of goods and services by using money.

Definition of Real Flow

Real flow is when goods and services move from one sector of the economy to another sector. Real flow is named so because there is the physical transfer of goods and services amidst the two sectors, i.e. households and firms. Hence, it is also termed as product flow or physical flow.

In real flow, the household sector being the owners of the inputs supply factor services in the form of raw material, land, labour, capital and enterprise to the firm, and in exchange, the firm provides goods and services to meet the demand of the households. Therefore, real flow is in the form of:

The household sector provides factors of production to the producer sector.
The actual flow of final goods and services from producers (firms) to consumers (households).

Further, it acts as a reward for the productive services offered by the households to the firms. And in this way, money does not play any role in real flow, due which the difficulties of barter exchange may take place.

As you can see in the figure shown

Real Flow Money Flow