The circular flow diagram shows that

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The circular flow diagram, which shows the movement of goods, services, and payments in an economy, indicates that the value of total income generated from the production of goods and services is equal to the total value of expenditures on final goods and services. This is because all the income generated by producers is spent by households on consumption or saved, which results in the production of more goods and services, and the cycle continues. Thus, the circular flow diagram reflects the important concept of the equality of national income and total expenditure in an economy.

The Circular Flow Diagram Shows That