circular flow model

The circular flow model in economics illustrates how money and resources move between different parts of the economy. It shows the interactions between households and businesses: households provide labor and consume goods, while businesses create products and pay wages. Money flows in a circular manner—households spend money to buy goods and services, and businesses use this money to pay workers and invest. This continuous cycle helps sustain economic activity, demonstrating how consumption, production, and income generation are interconnected within an economy.