Definition
- Circular flow of income
- The circular flow of income is a model of the economy in which households sell labour and other resources to firms and spend the income on firms' output.
- Not to be confused with: Leakage
- A leakage is any part of income that is saved, paid in taxes or spent on imports rather than on domestic output.
Test yourself
What is the difference between circular flow of income and leakage?
Leakage: A leakage is any part of income that is saved, paid in taxes or spent on imports rather than on domestic output.