Definition
Refers to cycle of generation of income in the production process, its distribution among factors of production and its circulation from household to firm in form of consumption expenditure on G&S produced by them.
- Household - land, labour, capital entrepreneurs
- Firm - rent, wages, interest, profits
- Such payments are factor income for household
- households use this income on expenditures like G&S to be bought from the firm
flowchart TD
A["Generation Phase
'Production'"]
B["Distribution Phase
'Income'"]
C["Disposition Phase
'Expenditures'"]
A --> B
B --> C
C --> A
Assumptions
- no govt interference
- no trade or export
- no bank involvement