The circular flow of income is the process by which money and goods pass between different groups in the economy. A concept first developed by the French economist Francois Quesnay in the 18th century, it is used as the basis for studying macroeconomic relationships. In its simplest forms, it postulates that households provide labour to firms in exchange for money, which the households use to buy the goods produced by firms. Household savings represent a leakage from the economy, as money saved is removed from the circular flow, but this is partially compensated for by investment, which is an injection into the circular flow. In the real world, circular flow is complicated by such factors as taxation (leakage) and government spending (injection), exports (leakage) and imports (injection). National income accounts are based on the concept of the circular flow. Research Circular Flow of Income
In economics, the national income is the total of all incomes accruing over a specified period to residents of a country and consisting of wages, salaries, profits, rent, and interest. Research National Income
Abbreviations
Research Circular Flow of Income
