its a circular flow of income which includes all the sectors in economy

1.  The income received and payments made by
each groups.
Flows
Real
Flow
Money
flow
• Exchange of goods &
services between
households & firms
• Barter is system is adopted
for exchange.
• Monetary exchange between
two sectors.
• Exchange happens from
money so its free from barter
system.

2. Production
Units
Household
(factor owners)
Income Generation Income
Distribution
Income
Spending
Income is first generated in production units, then distributed to households and
finally spent on goods & services produced by these units to make circular flow
complete its course.

3. Rest Of
World
Government
Sector
Household
Sector
Producing
Sector

4. Factor Services
(Land, Labor, Capital and Enterprise)
Consumption Expenditure
(On Goods and services)
Factor Payments
(Rent, wages, Interest and Profit)
Goods and Services

6. Financial
Market
Factor Payments
Consumption Expenditure
Savings
Borrowings
Savings
Borrowings