MEANING OF CIRCULAR FLOW OF INCOME

     Production is a continuous process in an economy.Various factors of production like land,labour,capital and entrepreneurship are combined together for the production of goods and services.The supply of these factors of production comes from household sector.The factors offer their services to the producers(also known as firm)who in return produce goods and sevices.They make payments as reward in the form of rent,wages,interest and profit.They household sector spends this money on goods and services produced by the films.Thus,income or money first folws from  the firms to the  households in the form of factors payments and then from households to the firm to the form of consumption expenditure.The income continous to flow.In short,this type of economic activity remain in action with the help of circular flow of money and goods in four sectors:
1. Household sector
2. Producing sector
3. Government sector
4. Foreign sector
    Thus,circular flow of income and product is defined as the flow of payments and receipts for goods and services and factors services between sectors of the economy.