The circular flow
Households, firms, the government and banks keep passing money and goods to one another. Every bit of spending becomes someone else's income.
Why
Where does the euro you spend at the bakery go, and how does it ever find its way back to you?
When you buy a sandwich, your money does not vanish. The baker uses it to pay for flour, rent and staff. Those staff members then use it to do their own shopping.
Economists draw this as a circular flow. In one picture, you see how households, firms, the government and banks depend on each other, and why a problem in one place affects the whole circle.
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