<P> The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents . The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction . The circular flow analysis is the basis of national accounts and hence of macroeconomics . </P> <P> The idea of the circular flow was already present in the work of Richard Cantillon . François Quesnay developed and visualized this concept in the so - called Tableau économique . Important developments of Quesnay's tableau were Karl Marx' reproduction schemes in the second volume of Capital: Critique of Political Economy, and John Maynard Keynes' General Theory of Employment, Interest and Money . Richard Stone further developed the concept for the United Nations (UN) and the Organisation for Economic Co-operation and Development to the system, which is now used internationally . </P>

What is meant by the circular flow of income