How to explain circular flow of goods?

Question

How to explain circular flow of goods?

Answer 1

The flow of payments in an economy is a circular flow. Individuals - people living in households - work for businesses, rent their property (or their capital) to businesses, and manage and own the busineses. All these activities generate incomes - flows of payments from businesses to households. But households then spend their incomes - on consumption goods, in taxes paid to governments (that then spend the money on goods and services), and on assets like stock certificates and bank CDs that flow through the financial sector and are then used to buy investment and other goods.

All these are expenditures, the two flows - of incomes and of expenditures - are equal: all expenditures on products are ultimately someone's income, and every piece of total income is also expended in some way.

http://econ161.berkeley.edu/multimedia/c...

Answer 2

Is that the one with "households" and "corporations" and the factors market and all that stuff on it?