Answer:
The circular flow of the economy is a model that illustrates the flow of goods and services, as well as the flow of money in the economy. It shows how households and businesses interact with each other to facilitate the exchange of goods and services. In the circular flow model, households supply factors of production to businesses in return for income, which is then used to purchase goods and services from businesses.
The resources used in the productive process are land, labor, capital, and entrepreneurship. Land includes all natural resources such as minerals, water, and air. Labor refers to the physical and mental effort put in by people to produce goods and services. Capital includes all man-made resources such as machinery, tools, and buildings used in the production process. Entrepreneurship refers to the human resources that combine the other resources to create new products and services.
The owners of these resources receive payments for their use. Landowners receive rent, labor receives wages, capital owners receive interest, and entrepreneurs receive profits. These payments are all part of the income earned by households. This income is then used to purchase goods and services from businesses, which completes the circular flow of the economy. The circular flow model shows how the economy functions as a whole and how each component is interconnected with one another.