10,000 from the sale of ‘factor services’ to business sector and this business sector makes use of these inputs to produce an output in the economy exactly equal to Rs. The primary actors in the circular flow model are households and business firms—the two main components of the private sector in the U.S. domestic economy. The circular flow diagram is a basic model used in economics to show how an economy functions. Students draw their own maps to assess their understanding and illustrate their circular flow maps by using the I nternet to find examples of the markets. The circular flow of economic activity is a model showing the basic economic relationships within a market economy. The model depicts circular flow in two-sector simple economy, where household sector earns Rs. There is no saving (S). In this model, it shows how there is a cycle of exchange processes arising from the flow of money and the flow of goods and services. The basic circular flow of income model consists of seven assumptions: The economy consists of two sectors: households and firms. All output (O) produced by firms is purchased by households through their expenditure (E). What does The Basic Circular Flow Model show? There are three basic elements, or what are referred to as sectors, of the economy that must interact. It shows the circular flow of income between the household sector and the business sector. It illustrates the balance between injections and leakages in our economy. This lesson introduces the circular flow model to students by creating a model in the classroo m and through video clips from Discovery Education streaming . Circular Flow Lesson Plan. The circular flow of income is a model that represents how money moves around in an economy. Primarily, it looks at the way money, goods, and services move throughout the economy. This model is called the Circular Flow Model. The circular-flow diagram (or circular-flow model) is a graphical representation of the flows of goods and money between two distinct parts of the economy:-market for goods and services, where households purchase goods and services from firms in exchange for money; Breaking down Circular Flow Diagram The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. Circular flow Diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. 10,000. The circular flow model shown in Figure 2.3 illustrates exchanges in two markets, the product market and the factor market. In return for the factors of production, households receive factor payments (wages, dividends, rent, interest, profit) which are in turn spent on the output of firms. The Basic Circular flow model The basic circular flow model is an economic model that displays the flow of money through the economy. 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