Circular Flow of Macro Economy

The Circular Flow of the Macro Economy is an economic model that illustrates the balance between injections and leakages in the economy. The major exchanges are represented as flows of money, goods and services, and resources between economic agents, with the most common form of this model showing the circular flow of income between the household sector and the business sector. The circular flow model demonstrates how money moves from producers to households and back again in an endless loop. National income, output, and expenditure are generated by the activities of the two most vital parts of an economy, its households and firms, as they engage in mutually beneficial exchange.