Circular flow of income in a two sector economy: In a two sector economy, households are owners of factors of production. They provide factor services (in the form of labour, capital, land and entrepreneurship) to the firms. Firms produce goods and services and make factor payments (in the form of wages and salaries, interest, rent and profit) to the households. So, factor payments flow from firms to households.
The factor income earned by the households will be used to buy the goods and services produced by the firms, for which they make payment to the firms. So, consumption expenditure (i.e., spending on goods and services) flows from households to the firms. Thus, aggregate final consumption expenditure by the households in the economy is equal to the aggregate factor income received by the households.