The circular flow model demonstrates how money moves from producers to households and back in an endless cycle.
In economics, money moves from producers to workers in the form of wages and then returns from workers to producers when workers spend money on goods and services.
Models can be made more complex to include additions to the money supply, such as exports, and leakages from the money supply, such as imports.
When all these factors are added together, the result is the national gross domestic product (GDP) or national income.
Analysis of the circular flow model and its current impact on GDP can help governments and central banks adjust monetary and fiscal policies to improve the economy.