How does the process work in a circular flow diagram when applying it to an economy?

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Answer 1 · 2015-03-24T08:53:57

Well you have the main factor of production which is the Labor force (the people)
The Labor force help businesses produce final goods and in return they receive an income
After that the income they receive is spent on other goods and services
After that the income they receive is spent on other goods and services
The spending money goes back to the business to help them produce and give incomes
That is the circular diagram when you look at a macro-level you will find that the aggregate production is the same as the aggregate consumption (spending of the people)