AP MacroeconomicsCore Economic Concepts
Circular Flow Model
The circular flow model represents the flow of goods, services, and payments between households and firms in a simplified economy.
In the circular flow model, households provide factors of production like labor to firms in the factor market. Firms use these inputs to produce goods and services, which they sell to households in the product market. Households use the income they earn from selling factors of production to buy goods and services from firms. This creates a continuous flow of economic activity.