Circular flow of income
![Basic diagram of the circular flow of income. The functioning of the free-market economic system is represented with firms and households and interaction back and forth.[1]](/uploads/202501/04/Circular_flow_of_goods_income1142.png)
![Representation of Cantillon's primitive circular flow model[5]](/uploads/202501/04/CantillonCircularFlow1142.png)
The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanges in a closed circuit and correspond in value, but run in the opposite direction. The circular flow analysis is the basis of national accounts and hence of macroeconomics.