Circular Flow of Economic Activity: Understanding Leakages and Injections
What can be considered a leakage from the circular flow of economic activity?
Which of the following options below can be classified as a leakage from the circular flow of economic activity?
- Investment
- Government expenditures
- Consumption
- Exports
- Saving
Final Answer:
Saving can be considered a leakage from the circular flow of economic activity. Government expenditures and exports are not considered leakages.
Explanation:
A leakage from the circular flow of economic activity refers to a withdrawal of money from the economy, reducing the total spending or aggregate demand. In this case, saving can be considered a leakage. When individuals and firms save money, it is not spent on goods and services, reducing consumption and investment.
Government expenditures and exports are not considered leakages because they contribute to the circular flow of economic activity by injecting money into the economy.