Which of the following is not an assumption of a two sector model of Circular Flow of Income nb...........

Economics (CUET) National Income Accounting

The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction. The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.
Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.

Which of the following is not an assumption of a two sector model of Circular Flow of Income?

Domestic economy comprises only 2 sectors, the producers and the households.

The households spend their entire income, so that there is no saving.

Domestic economy is an open economy (no exports and imports).

There is no government in the economy.

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Explanation:

Option (3) is correct.
Explanation: The two sector economy has the following assumptions:
(1) There are only two sectors in the economy; household sector and business sector.
(2) No government interventions over the economic activities.
(3) Business sectors do not carry out any import or export activities, creating a closed economy.