Skip to content
MarkSchemeMarkScheme
Sign up — no card

9708 · 9.1

The circular flow of income

**Circular flow** (9.1) is foundation for **A Level macro**. Draw **all four sectors** (households, firms, government, foreign) for open economy questions.

Need to know

What you need to know

  • Households supply factors of production to firms.
  • Firms pay factor incomes (rent, wages, interest, profit) to households.
  • Households use income for consumption expenditure on goods and services from firms.
  • There is a 'real' flow of factors and goods, and a 'money' flow of incomes and expenditure.

Explanation

The circular flow of income

  1. Households supply factors of production to firms.
  2. Firms pay factor incomes (rent, wages, interest, profit) to households.
  3. Households use income for consumption expenditure on goods and services from firms.
  4. There is a 'real' flow of factors and goods, and a 'money' flow of incomes and expenditure.
Mark this topic →Open full visual lesson