2.4.2 - Injections and Withdrawals

Question 1

Define injections

Answer 1

in the circular flow of income, spending which is not generated by households. It is the introduction of income into the circular flow of income

Includes investment, government spending and exports

Question 2

Define leakages / Withdrawals

Answer 2

In the circular flow of income spending by households that doesn’t flow back to domestic firms. It is the withdrawal of income from the flow

Includes savings, taxes and imports

Question 3

Explain the three types of injections

Answer 3

Investment - Spending by firms on new capital equipment like factories, offices and machinery. It is also spending on stocks of goods which are used in the production process

Government spending - spending by central and local government as other government agencies

Exports - Spending by foreigners on goods and services made in the UK

Question 4

Explain the three types of withdrawals

Answer 4

. Saving by households is money which is not spent by households. Equally, firms do not spend all of their money on wages and profits but save some of it

. Taxes are paid to the government through money from both households and firms

. Imports from abroad are bought by households and firms.

Question 5

What happens in macroeconomic equilibrium?

But what happens if there is no macroeconomic equilibrium?

Answer 5

. Injection must equal withdrawals

. Output, expenditure and income flowing must remain the same

BUT :

. When injection > withdrawals national income rises

. When injection < withdrawals national income decreases