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(iii) These two sectors are dependent on each other in the following ways:
• Producers supply goods and services to the households.
• Household (as the owners of factors of production) supplies factors of production
(or factor services) to the producers.
This interdependence can be explained with the help of the diagram given here.
(b) Money Flow
(i) Money flow refers to the flow of factor income, as rent, interest, profit and wages
from the producing sector to the household sector as monetary rewards for their
factor services as shown in the flowchart.

(ii) The households spend their incomes on the goods and services produced by the
producing sector. Accordingly, money flows back to the producing sector as
household expenditure as shown in the flowchart.

Circular Flow Of Income In Two Sector Model:

The following assumptions with regard to a simple economy with only two
sector of economics activity are:
(i) There are only two sectors in the economy; that is, household and firms.
(ii) Household supply factor services to firms.