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Injections it means the addition or introduction of income to the circular flow of an economy What is produced must be purchased to sustain the current level of economic activities. Injections into the circular flow of income are a result of money borrowed by households and firms from different external sources, like financial institutions
Circular Flow Model Leakages And Injections
However, this additional income does not result in an immediate expenditure The economy runs like a circular flow of money and physical goods Therefore, injections increase the flow of income in an economy.
Injections come from various sources, such as business investment in new equipment or infrastructure, government spending on goods and services, and income earned from exporting goods and services abroad
The balance between injections and leakages is critical for economic health. Injections and leakages just as money is injected into the economy, money is withdrawn or leaked through various means as well. Leakages and injections in circular flow diagram leakages or withdrawals (w) a leakage or withdrawal (w) is the money taken out of the circular flow of income The following diagram illustrates the three types of leakages
An image illustrating the leakages Injections (j) an injection (j) is the money added to the circular flow of income. The full circular flow model with leakages and injections the full circular flow model includes leakages and injections from and to the domestic economy It also adds the extra sectors that account for those leakages and injections i.e., government, foreign trade, and the banking and finance sector.
The circular flow injections and leakages can be best illustrated using the standard circular flow model of the macro economy, such as that presented in the exhibit to the right
The circular flow is a handy model of macroeconomic activity that highlights the interaction between households and businesses through the product and resource markets. Injections increase the flow of income Injections can take the forms of investment, government spending and exports As long as leakages are equal to injections, the circular flow of income continues indefinitely
Financial institutions or capital market play the role of intermediaries. Injections & leakages are the notions that explain the flow of funds in and out of an economy Funds injected into the economy, such as investments, government spending, and money attained through exports. Injections, on the other hand, are the opposite of leakages and include investment, government spending, and exports
They add to the circular flow of income and can stimulate economic activity.
