Explain the circular flow of income for an economy and the central problems associated with the circular flow.
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This means that the expenditure of buyers (households) becomes income for sellers (firms). ... The factor owners spend thisincome on goods which leads to a circular flow of income. This basic circular flow of income model consists of six assumptions: The economy consists of two sectors: households and firms.
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The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.
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