What is a circular income stream in an economy?

A circular flow of income in an economy is a model of an economic system in which exchanges are presented as flows of money, goods and services between various economic agents. In a closed loop, the flow of money and goods is equal in value, but flows in opposite directions. For example, a country can import goods and export goods to other countries. Households and other companies in these countries buy these goods, taxes are paid on the goods both by individuals and by importing and exporting countries. Different production markets have wage earners whom they pay to produce goods that are then bought by people, and companies that are paid by other economic agents are markets. The production and consumption of goods and services brings money to companies who pay their employees, who then buy more goods, and the flow of money, goods and services continues.

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