Economics - can someone explain this to me please?

Question

"The circular flow model shows how real resources and financial payments are exchanged between firms and households." (Beff, Fischer & Dornbusch)

What does this statement mean - I understand it I think but cant put it into words and not sure. Can someone please help me out as I'm doing my work now and a little stuck. Thanks

Answer 1

It is basically a model including households and firms. Households give money to firms to buy the product and firms supply the product.

Also households provide real resources- including labour (workers) and thus firms provide wages in return for this.

It is circular as could not exist without the other as money flows between both.

Answer 2

The model basically shows how people from households use their money (financial payment) to buy things they need from the the shops (firms)..