Leakage and Injection Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Microeconomics Help

Homework Help

sfsf

Leakage and Injection

Leakage (also called withdrawal) represents that part of income which is not passed on in the circular flow of income, and therefore, not available for spending on currently produced goods and services, leakages have a contractionary effect on national income.

Injection is an exogenous addition to the income of firms or households. That is, it is an addition to the income of domestic households or firms that does not result from the immediate expenditure of the private sector.

Injections have an expansionary pressure on national income.

Injections = Leakages.

For an economy to be in equilibrium, injections should be equal to leakages.

The major sources of leakages and injections are as follows:

(i) Two-sector economy :

Leakage : Saving (S)

Injection : Investment (I)

(ii) Three-sector economy :

Leakage : Saving (S) + Taxes (T)

Injection : Investment (I) + Governments Expenditure (G)

(iii) Four-sector economy :

Leakage : Saving (S) + Taxes (T) + Imports (M)

Injections : Investment (I) + Government Expenditure (G) +Exports (X).

Thus, in a four-sector economy, the condition of equilibrium of an economy is given as:

C + S + T + M = C + I + G + X