Introduction to the circular flow of income

Need to know

What you need to know

• Households supply factors of production and receive factor incomes.
• Firms produce goods and services and receive revenue from their sale.
• Real flows are the movement of goods, services, and factors of production.
• Money flows are the payments for these, such as wages and consumer spending.
• In the basic model, National Income = National Output = National Expenditure.

Explanation

Introduction to the circular flow of income

1. Households supply factors of production and receive factor incomes.
2. Firms produce goods and services and receive revenue from their sale.
3. Real flows are the movement of goods, services, and factors of production.
4. Money flows are the payments for these, such as wages and consumer spending.