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A circular flowchart in economics is a visual representation that illustrates how money, goods, and services move through the economy. It highlights the interactions between different sectors, primarily households and businesses, demonstrating how voluntary exchanges occur in a free market system.

In this model, households provide factors of production, such as labor, to businesses, and in return, they receive wages. Businesses produce goods and services that households purchase, creating a continuous loop of economic activity. This emphasis on voluntary exchanges is fundamental to understanding how a free market operates, as it shows the interconnectedness of participants in the economy and the mutual benefits derived from these transactions.

While government spending, consumer preferences, and inflation and deflation trends are important concepts in economics, they are not the primary focus of a circular flowchart. The circular flowchart specifically illustrates the transactions and relationships that occur within the market, not the effects of government intervention or specific economic trends.