Short answers, pulled from the story.
The circular flow of income is a model of the economy in which major exchanges are represented as flows of money, goods, and services between economic agents. The flows of money and goods run in opposite directions but correspond in value. It forms the basis of national accounts and macroeconomics.
Richard Cantillon, an 18th century Irish-French economist influenced by William Petty, introduced one of the earliest versions of the idea in his 1730 Essay on the Nature of Trade in General. Francois Quesnay was the first to visualize it in his 1758 Tableau economique.
Karl Marx extended Quesnay's insights in the second volume of Das Kapital to model the circulation of capital, money, and commodities within capitalist society. He distinguished between simple reproduction, where no growth occurs, and expanded reproduction, where reinvestment of surplus value enables economic growth.
Leakages are withdrawals from the circular flow, including savings, taxes, and imports. Injections are additions to the flow, including investment, government spending, and exports. When total leakages equal total injections, the economy is in equilibrium.
The five-sector model includes households, firms, government, the rest of the world (foreign sector), and the financial sector. Each successive sector added to the basic two-sector model introduces new leakages and injections that make the representation of the economy more complete.
The circular flow diagram does not account for the economy's dependence on natural resources and waste absorption. According to the laws of thermodynamics, the economy requires continuous inputs of low-entropy natural capital such as solar energy, oil wells, fisheries, and mines, and must absorb high-entropy waste outputs, implying a finite and sustainable limit to economic growth.