A circular flow diagram represents how goods, services, and money move through our economy. There are two major actors known as households and firms. ... Households then offer land, labor, and capital (known as factors) to firms so that they can then produce the goods and services.

What are the 4 main parts of the circular flow diagram?

The four sectors are as follows: household, firm, government, and foreign. The arrows denote the flow of income through the units in the economy.

What do circular flow diagrams show?

The circular flow model is an economic model that shows the flow of money through the economy. The most common form of this model shows the circular flow of income between the household sector and the business sector. ... Members of households provide labor to businesses through the resource market.