The circular flow model illustrates: how models can be more complex than reality. Oh, how inputs, goods and services, and money flow through the economy. Oh, how correlation doesn’t imply causation. Oh how the economy can work more efficiently.
Answer
The circular flow model illustrates the economic relationships between all actors in the economy: firms, households, goods and services markets, government, factor markets and foreign markets. It shows how money flows from producers to workers in the form of wages and returns to producers in the form of payments for products. The correct answer is therefore the second:
how inputs, goods and services, and money move through the economy.