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The circular flows model represents how goods and services are purchased by households from firms in the product markets, and how resources of households are acquired by firms in the resource markets. Money flows (payments and income) move in opposite direction of the product and resource flows.
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A circular flow of money can be observed even at the level of a household where the income earned is used to go to the store and buy a variety of goods. These purchases create, in turn, income for those who produce the goods. |
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