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In a three-sector economy, the circular flow of income and output illustrates the movement of resources, goods and services, and money among three main sectors: households, firms, and the government. This model helps to understand how national income is generated and distributed in the economy. It expands upon the two-sector model (households and firms) by adding the role of government. In the circular flow model, households provide factors of production (land, labor, capital, and entrepreneurship) to firms and receive income in the form of wages, rent, interest, and profits. Households then use this income to purchase goods and services from firms, creating a flow of consumption expenditure. The firms, in turn, use the revenue from households to produce goods and services ________ _______ _______ _____ _____ ___.
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