Circular flow

• Households

  -Households own the factors of production namely capital, enterpreurship, land labour

  -They sell their factors of production on the factors market

  -They use the income remuneration to buy goods and services from businesses to satisfy their needs and wants
• Businesses

  -Businesses purchase the factors of production from households on the factor market

  -They use these factors of production to produce goods and services which are sold in the product market

  -Firms decide what goods and services to produce
• Government

  -The government is both a producer and a consumer

  -it is a producer because it provides public goods and services e.g hospitals and schools

  -Government pays for all its expenditures from taxes paid by households and business
• Foreign sector

  -flow of impot and exports between countries leads to the Foreign exchange

  -Exports income is earned when business sell goods and services to Foreign markets

  -Foreign sector plays a significant role in the circular flow as it creates a platform for international trade