Suppose households had an income of ₹5000 out which they saved ₹2000. After some time, they reduced the amount of savings by ₹ 500. What will be its impact on the circular flow of income?

Injection

The correct answer is option 1: Injection

Earlier households saved ₹ 2000. Now they save ₹ 500 less. So now they save ₹ 1500 and spend more. This mean increase in consumption. Circular flow of income consists of consumption, investment, government expenditure and net exports. An increase in any of these is an injection. Since in this question, consumption is increasing, it is an injection in the circular flow of income.