Question

In the circular flow of income and spending, i.e. the basic flow of income and spending between households and firms supplemented by the foreign, financial and government sectors,

Answer 1

The circular flow of income and spending describes how the GDP is in fact redistributed between the different economic agents of a national economy. These agents include households, firms, governmental bodies and foreigners. The model shows how the different kinds of income and spending are flow between these agents. It is important to know where the value is created.