The circular flow model of the economy shows how households and businesses work together to keep the economy going. Let’s break it down simply:

1. Households:

   • Households are the people who buy things. They work for businesses and earn money, called wages.
   • They use this money to buy goods and services, which are the things businesses sell.
   • When households spend their money, it helps businesses make more money and grow.

2. Businesses:

   • Businesses make the goods and services that households need and want.
   • They pay households for their work, which brings that money back into the economy when people buy things.
   • Businesses also put some of their profits back into making more products. This helps create more jobs and new ideas.

Together, this back-and-forth movement creates a constant flow of economic activity. It’s like teamwork: households push businesses to provide what they want, and businesses give households jobs and services. Understanding this connection is really important to see how our economy works!