ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In the basic (two-factor) circular flow model, money flows from households to businesses as consumer expenditures in exchange for goods and services produced by the businesses, then flows back from businesses to households for the labor that individuals provide.

Detailed explanation-2: -Businesses use the economic resources they buy in the market for resources to produce goods, such as computers and bicycles, and services, such as haircuts and car repairs. Businesses sell these goods and services to households in the market for goods and services.

Detailed explanation-3: -In the circular flow of the economy, money is used to purchase goods and services. Goods and services flow through the economy in one direction while money flows in the opposite direction. The factors of production include land, labor, capital and entrepreneurship.

Detailed explanation-4: -In a closed economy, goods and services are exchanged in product markets and factors of production are exchanged in factor markets.