The best definition of the circular flow of income is the exchange of money between firms and households.
The circular flow model shows the flow of money in society. Money is sent back and forth between producers and employees in the form of wages and payments for goods. An economy is essentially an unending circle of money flow.
The model is constructed in this manner, but actual cash flows are more intricate. To more accurately represent the complex modern economies, economists have included more variables. These elements make up a country's national income or gross domestic product (GDP). The cyclic flow of income model is another name for the model because of this.
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