circular flow of income

Definition

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.

Use this term in a sentence

The circular flow of income model is a continuous and often complex one that can give insight into how interdependent industries and economic factors are in a particular region.

​ Was this Helpful? YES  NO 1 out of 1 people found this helpful.

Show more usage examples...

Featured Advertiser

Browse by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
circular circular letter of credit