Explain the concept of the circular flow. What will be an ideal respo

Explain the concept of the circular flow.

What will be an ideal response?

ANSWER

The circular flow refers to the interrelationships between income and output. In every exchange the seller receives exactly what the buyer pays. This also means that someone’s receipt is someone else’s payment. Goods and services flow in one direction and money payments in the other. The total income received by people must equal the total spending of people. Businesses provide goods and services and sell them to households, and households provide the resources used by firms in exchange for income.