Circular flow of income

The circular flow of income is a model that shows how money moves between households and businesses in an economy. Households provide factors like labor and land to businesses, which in turn produce goods and services that households buy. The money paid by households for these goods and services becomes income for businesses, which then pay wages, rent, and profits back to households. This ongoing cycle keeps the economy functioning smoothly, demonstrating interdependence between consumers and producers, with money continually circulating through transactions.