Figure 1. The Circular Flow. The circular flow represents pictorially the flow of production, income, and resources between producers, consumers, government and foreign entities. The circular flow illustrates how key players in the macro-economy fit together, for example how a reduction in household consumption is offset by an increase in finance investment by business sector or purchases by the government sector. The circular flow is often viewed as a closed system: all flows are accounted for. To step outside the circular flow means we find resources and consumers of resources not currently not included within the flows and boxes.