Circular flow of income

The circular flow of income is a model linking production, income and expenditure across an economy. In its simplest form, households supply factors of production to businesses, receive income and spend it on goods and services. Expanded models include government, financial institutions and the overseas sector. Saving, taxes and imports are commonly described as withdrawals, while investment, government expenditure and exports are injections. The model helps explain connections between sectors rather than showing every real-world transaction.