What the circular flow model is basically: The circular flow model in economics describes how resources, money, goods, and services flow through an economy. In order for economies to thrive, there must be movement, energy, and life. Therefore, the circular motion shows the flow of money to households then into goods and services and back into households.
How it is in a free market system: In the simple circular flow model of the free market, money flows in the opposite direction. Here's how it works. To make goods and services for the product market, businesses purchase resources from the resource market, generating cost.
