Circular Flow of Income

The Circular Flow of Income is a theoretical economic model that illustrates the flow of money, goods, and services between households and businesses within an economy. In the circular flow model, households supply factors of production, such as labor and capital, to businesses in exchange for wages, salaries, and income. Businesses use these factors of production to produce goods and services, which are then sold to households in exchange for payments, completing the circular flow of income. The model also incorporates government and international sectors to depict additional flows and interactions within the economy.