Circular flow of income
An income flow in an economy where the value of the output produced is equivalent the total income earned from its production, which is also equivalent to the expenditures spent on purchasing that output.
At its core, an economy consists of firms and households, which are connected through the economy:
In other words, the circular flow of income indicates that:
National output = National income = National expenditure.
This flow of income can also be represented by the circular flow of income model.
Circular flow of income model
A model illustrating the flow of resources from households to firms, the movement of goods and services from firms to households, and the associated monetary flows, including household income generated from selling resources and firms' revenues from selling their products.
The circular flow of income illustrates how:
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