(i) Circular flow of income is a model of an economy showing connections between different sectors of an economy.
(ii) It shows flows of income, goods and services and factors of production between economic agents such as firms, households, government and nations.

(i) Capitalism is a system where the means of production are privately owned.
(ii) Market determines the economic activities (e.g.) The USA, Japan.

Macro economics is the branch of economics that studies the behaviour and performance of an economy as a whole.

There are only two sectors - household sector and firm sector.
(i) Household Sector
1. It supplies the factors of production and gets income from the firm sector
2. It buys goods and services with its entire income.
(ii) Firms:
1. It hires factors of production from the household sector.
2. It gets revenue by selling goods and services to the household sectors.
3. The production and sales are equal.
Y = C + I
Y is income
C is consumption
I is investment

(i) Automatic working without any government intervention.
(ii) Efficient use of resources.
(iii) Incentives for hard work.
(iv) Production and productivity are high, so there is economic progress.
(v) Consumers sovereignty exist.
(vi) Increased saving and investment leads to higher capital formation.
(vii) Development of new technology.

(i) Macro economics helps to understand the functioning of the economy at the aggregate level, to evolve strategies to solve the basic problems.
(ii) To understand the future problems, needs and challenges.
(iii) To provide opportunities to use scientific investigation to understand reality.
(iv) To make meaningful comparison and analysis of economic indicators. To predict the future and formulate suitable policies to avoid economic crises.