circular flow of income


A model that indicates how money moves throughout an economy, between businesses and individuals. Investors spend their income by consuming goods and services from businesses, paying taxes and investing in the stock market. Businesses use the money spent by individuals while consuming and the money raised from selling stock to pay for capital to run their business, purchase material to manufacture products and to pay employees. All expenditures from individuals become the income of the businesses, and the expenditures of the businesses become the income of the individuals.

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You should try and make sure that you understand how the circular flow of income works and are using it to your advantage.

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The path to sustainable living is to have multiple streams of income. When you have income from several rental properties monthly, you reach a circular flow of income.

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When Sam looked at the circular flow of income in his community, such as the grocer buying boots made at the local factory and the factory workers buying groceries, he knew the town was lucky to have such a system.

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circular circular letter of credit