a) Circular flow of income

• define the circular flow of income

• the directions of money flow between households and firms in an economy

• explain the circular flow of income

• households own the factors of production

  • they supply land, labour, capital, and enterprise to firms

  • they receive rent for land, wages for labour, interest for capital, and profit for enterprise

• firms purchase the factors of production from households

  • they produce and supply goods and services to households with these factors of production

  • they receive revenue from household expenditure on these goods and services

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