2.4.2 Injections and withdrawals

Question 1

For an open economy (I.e. a country that trades internationally) and with a government sector, there are three injections of extra demand into the circular flow. What are these injections?

Answer 1

• Investment spending on new capital goods (I)
• Exports of goods and services (X)
• Government spending on public services (G)

Question 2

For an open economy (I.e. a country that trades internationally) and with a government sector, there are also three leakages. What are these leakages/withdrawals?

Answer 2

• Savings (S)
• Imports of goods and services (M)
• Taxation (T)

Question 3

What happens when injections = withdrawals?

Answer 3

When injections = withdrawals (i.e. I+G+X = S+M+T), the circular flow is in balance

Question 4

What happens to national income when injections > withdrawals?

Answer 4

If I+G+X > S+M+T, the level of national income will rise

Question 5

What happens to national income when injections < withdrawals?

Answer 5

If I+G+X < S+M+T, the level of national income will contract