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The flow begins with workers leaving their households and going to work at businesses. They not only bring with them their labor, but also all the other factors of production, including land (natural resources), capital, and entrepreneurial talent.
In return for the factors of production (resources or inputs), businesses pay incomes: wages, rent, interest and profits to the members of the households.
Together, the supply of resources and the payments for their use constitute the factor market. What do the businesses do with all those resources? Since we assumed no investment in new capital, no government, and no foreign sector, all they can do is produce consumer goods and sell them to households..
And what do the members of the households do with their incomes? Since we assume no savings, government, nor foreign sector, all they can do is spend the money on consumer goods -- consumption. Together, the provision of goods and the payment for them constitute th
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