The circular flow model illustrates: how models can be more complex than reality. how inputs, goods and services, and money flow through the economy. how correlation does not imply causation. how the economy can operate most efficiently.

How inputs, goods and services, and money flow through the economy.

Explanation:

The circular flow model refers to an economic model which shows the flow of money in an economy. In a product market, there are two players; households and producers of the product. Household purchases the goods and services from the sellers available in the market. These products are provided by various sellers in an economy. There is one of the most common model under this circular flow is the flow of money between the households  and the businesses.

There are four sector in this circular flow model:

(i) Household sector

(ii) Business sector

(iii) Government sector

(iv) Foreign sector.

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