Question

Advise what the following terms mean: Leakages from spending. Injections into spending. What happens when leakages equal injections? What does equilibrium mean in macroeconomics?

Answer 1

Leakage  from spending, means some of the funds are taken away in the form of savings or taxes paid or other non consumption based activities. It reduces the impact of spending and spending multiplier as each round of spending, will make some amount leaked.

Injection into spending, means adding funds into the spending so that spending level is increased. Increase in money supply is the case of injection into the spending. Making investments is also a kind of injection, that is used to stimulate the economy.

When leakages equal to the injections, then total spending equals total output produced in the economy and an equilibrium is achieved.

Equilibrium in the macroeconomics, means aggregate demand equals aggregate supply. At equilibrium, GDP will be equal to the total spending. At a long term equilibrium, the output will be at a natural rate of unemployment.