Circular flow of income
Definition. The circular flow of income is a model showing how money, goods, services and factors of production move continuously between households and firms in an economy. Households supply factors and receive incomes, which they spend on the output that firms produce using those factors.
Injections of investment, government spending and exports add to the flow, while withdrawals of saving, taxation and imports leak from it. National income is in equilibrium when total injections equal total withdrawals.
This term belongs to The Circular Flow of Income in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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