Chap 10 Flashcards
leakage?
income not spent directly on domestic consumption but instead diverted from the circular flow
ex. saving, imports, taxes
gross business saving?
depreciation allowances and retained earnings
injection?
addition of spending to the circular flow of income
what are forms of injections?
investment, government and export spending
what must injections equal?
leakages if all the output supplied is equal to the output demanded (macro equilibrium)
Multiplier?
tells us the extent to which the rate of total spending will change in response to an initial change in the flow of expenditure
what are forms of leakages?
consumer saving, business saving, taxes, and imports
why are they leakages?
bc they take money out of economy
why are they injections?
because they add money into the economy
when desired injections = leakages, economy is in what?
equilibrium
an imbalance of injections and leakages will cause what?
economy to expand or contract
what does the multiplier do>
indicates the cumulative change (shift) in aggregate demand that follows an initial (autonomous) disruption of spending flows
