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Use the drop-down menus to complete the statements. In the circular flow model, households provideto firms. This is represented by the letter A. In return, within the circular flow model, firms provide households with. This is represented by the letter B. Firms then provideto households. This is represented by the letter C. Finally, households provide theirto firms. This is represented by the letter D.

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1. Factors of production 

2. Goods and services 

3. Income 

4. Expenditures 

The circular flow of the model works in the following way:

  • Households would provide (A) factors of production to firms.
  • Firms in return provide households with B. Goods/ services.  
  • Firms will then give C. income to households in return.
  • Households would finally spend their D. expenditures on firms.

The circular flow demonstrates the movement of money in the economy. The two-sector model of circular flow comprises households and firms.

Money first flows from producers to households in return for production services in the form of wages.  Finally, return to producers back in the form of payment for the purchase or expenditure made by households.

Learn more about the circular flow of money here:

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