The circular flow model demonstrates how money moves endlessly from producers to households, then back from households to producers. It factors into a country’s gross domestic product (GDP).

The theory is based on a circular flow of the economy in which current spending drives future spending. It calls for a lowering of interest rates to boost spending levels during an economic recession.

One fraud scheme that has been encountered with increasing frequency involves the inflation of accounts receivable and sales through the creation of a circular flow of cash through a company to give ...