Question

explain what the term "leakage" means. identify the three main ways that economic Leakage can occur?

Answer 1

Economic Leakage:- Leakage refers to capital or income that exits an economy or system rather than remaining within it. In economics, the term refers to the outflow from a circular flow of income model. In a two-sector model exhibiting a circular flow, all individual income is sent back to employers when goods and services are purchased, and back to employees through wages and dividends. This cycle creates a system without leakage.

Three main ways that economic Leakage or Sources of Leakage:-

1) Importing goods can also result in leakage when the goods are considered necessary to support local businesses or interests. The funds used to purchase the imports leave the immediate area, resulting in an outflow from the home area.

2) Export funds can result in leakage when those funds are invested in areas other than where the exports are produced. This most commonly occurs in multinational business operations.

3) Information or data leakage occurs when internal information that should be held private or confidential is released to the public. This release of information can include the accidental or intentional disclosure of information, or a failure to secure the information, which leads to exposure.