The Circular flow of income can be better understood with the help of following diagram:
![image](https://learnqa.s3.ap-south-1.amazonaws.com/images/16114077624795856349pakeqjqRnkDslv3.png)
Income are generated in production units due to the joint efforts of factor owners from households.
These incomes are distributed to the factor owners who in turn spend the income on purchasing goods and services produced in production units. This makes the circular flow of income complete.