The Circular Flow of Money explains how money moves through an economy between different groups. In its simplest form, households provide factors of production (land, labor, capital, entrepreneurship) to firms, and in return they earn income (wages, rent, interest, profit). Households then spend this income on goods and services produced by firms, creating revenue for businesses. This constant exchange forms a loop of income and spending. In a more complex model, governments (through taxes and spending), banks (through savings and loans), and foreign trade (imports/exports) are added, showing how money continuously flows and sustains economic activity.