Draw an appropriate diagram and explain how circular flow of income and expenditure takes place.

The circular flow of income and expenditure is a fundamental concept in macroeconomics that illustrates how money, goods, and services flow through an economy. It highlights the interdependence of households, businesses, and the government in the economy. To understand this concept, we can use a simplified diagram.

1. Households: In the circular flow model, households are on one side of the diagram. They are the ultimate consumers of goods and services. Households provide factors of production, such as labor, land, and capital, to businesses.

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