Question

1. What are the leakages and injections in the scenario from #1 and what equation holds between them in equilibrium?  

            Injections in the circular flow of income, spending which is not generated by households, examples are investments, government spending and exports.
             Leakages or withdrawals in the circular flow of income, spending by households which does not flow back into the domestic firms, examples are savings, taxes and imports.

Answer 1

The model circular flow of income shows the movement of money in the society.The circular income model shows thew link between different sectors in our economy it revolves around flow of services and goods and factors of production between households and firms. from the hands of producers money flows to workers in the form of wage and flows back to producers as payment for products.This is basic model of circular flow of income.lets consider the government and foreign sector in the model. Government spends money in the programs like national park administration and social security. In the circle money flow through exports which brings money from buyers in the foreign country. The injections to the circular flow of income , addition to government spending, exports and investment boost the circular flow which lead to multiple expansion of output.

1. overseas buying

2.government expenditure

3.investment expenditure

We will receive income when we sell products to abroad thus the investment mad by foreigners will receive the income level of our country. These are the two injections in the circle. Investment, exports, government spending are considered to be injections. This injections helps to increase the income this happens when fund is added to economy from various sources other then that of various and household.

  

The term leakage means income or capital that exist in a system rather than remaining within it. It is outflow of income from the circular flow. Leakage results in a gap in demand and supply chain it occurs when imports, savings and taxes removes the income from the system. In the basic model it is the consumers spending to a local market. it is the non consumption uses such as imports ,taxes and savings. this is a major issue involve in tyrannational coorporations. lakage gradually reduces the flow of income. it is the outflow of money from the circle model. it partially reduces the money from tourism sector. The savings made by firms and households result in leakage.It is the leakout of current income , decreases expense on services and current goods.Saving is considered as leakage as it is the non usage of money so that money cant be find in economy in any ways, so the money is seen as it leaked out from economy.Taxation is also a leakage form because it creates gap between demand and supply as it is way of spending money outside market.Import is another leakage. Countries have to purchases services and goods for tourism. For newly beginned tourism industries impot is an major issue as import as much 50 % of these products.