CIRCULAR MODEL OF

ECONOMY
The circular flow model showcase how money flows in society. Money flows
from producers to workers as wages and flows back to producers as payment
for products. In short, an economy is an endless circular flow of money.
This is the basic form of the model, but actual money flows are more
complicated. These factors are the components of a nation's gross national
product (GDP) or national income. For that reason, the model is also referred
to as the circular flow of income model.
Factor market provides the money income to Households (in form of wages,
rents, interests etc.) and acquires Factors of production from Households.
Households provides Factor Services to the Factor Market (in form of Land,
labour, capital etc) and incurs consumption expenditure and receives goods
and services against it from product market.
Product Market generates revenue to Businesses and purchases goods and
services from them to trade it further.
Businesses buys all factors of productions from Factor Market and sells the
goods and services to the product market.
Factor Market provides Factors of production to Businesses for a cost.

ASSUMPTIONS
1. There are only two sectors only
2. There are no saving
3. There is no inventory
(FIG:1)
(FIG:2)
*FIG:1 :- SIMPLE FLOW CHART OF CIRCULAR FLOW MODAL