The circular flow of economic activities is a simplified macroeconomic model illustrating the interactions between different sectors of the economy—households, businesses, and the government—through the exchange of goods and services, productive resources, and money. This model shows how income and expenditure move in a circular manner, depicting the continuous flow of payments and receipts. Economic transactions generate real flows (exchange of goods and services) and money flows (payments for these goods and services). In a two-sector model, households provide factors of production to firms, which produce goods and services for households, with money flowing between them. In a three-sector model, the government also participates by collecting taxes and redistributing income through spending and transfers, adding complexity to the circular flow. This interconnected system underscores the interdependence of all sectors within an economy.