Circular Flow of Income

An accepted general model of economic behaviour in Macroeconomics is the Circular Flow of Income, which depicts a simplified view of how sections of the economy (output, income and expenditure) fit together.
Factors of production in the economy are generally categorised as land, labour and capital. Households are the ultimate owners of firms, therefore, it is accurate to say that households (people) sell their land, labour and capital to firms (producers) for which they receive income in the form of rent, wages and profit (dividends and royalties). …