The circular flow of income is a neoclassical economic model depicting how money flows through the economy. Money usually flows from the business firms to the households as factor payments which are wages, interest rent as well as profits. On the other hand, the money flows from the households to firms as the consumption expenditure which are made by the households on the services and goods produced by the firms. Therefore, it can be stated that the money flows from the business firms to households as factor payments and then after that is similar way it flows from households to firms. In this way it can be said that the value of business output of goods and services is equal to the income of the households.
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