"Disposition Phase of circular flow of Income involves flow of factor Income, which comprises of rent, wages, interest and profits from firms to households." Defend or refute the statement, giving valid reasons in support of your answer. Estimate the value of Net Domestic Product of Factor Cost (NDP_FC), using the following information :

Question

Accepted Answer

**Refute the statement.**

The disposition phase does NOT involve the flow of factor income. The statement is incorrect because:

- The **distribution phase** involves flow of factor income (rent, wages, interest, profit) from firms to households
- The **disposition phase** involves households spending their received income on goods and services produced by firms
- In the disposition phase, consumption expenditure flows from households to firms, not factor income

The three phases are:
1. Generation phase — production of goods and services
2. Distribution phase — distribution of factor income from firms to households
3. Disposition phase — spending of income by households on goods and services