Additional seating banquettes around a new dance floor produce a circular flow to the space.

The circular flow of income involves two basic assumptions:- 1.

The factor owners spend this income on goods which leads to a circular flow of income.

The centrifugal force created by the circular flow throws the dust particles toward the wall of the cyclone.

The model is best viewed as a circular flow between national income, output, consumption, and factor payments.

Accordingly, the model assumes that government spending is determined mainly by factors outside the circular flow.

In other words, extra spending automatically generates additional leakages from the circular flow.

We could examine the workings of the multiplier by considering changes in other injections into the circular flow.

Some ratios use domestic product, which measures resources produced entirely within the domestic circular flow.

But how long can this stable equilibrium, based on a circular international flow, continue?