• 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.