A closed economy

A closed economy is part of the circular flow of income model comprising domestic economic decision makers. In the closed economy model, households supply factors of production (land, labour, capital and enterprise) to domestic firms in order to produce or supply output of goods and services. In return, firms provide factor incomes to households (rent, wages, interest and profit). With the income, households spend their money on goods and services produced by firms, thus creating expenditure revenue for firms. Hence, the income flow is numerically the same value as the expenditure flow and the output flow.