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

• In the circular flow of income, savings are considered a withdrawal or leakage from the economy because they reduce the amount of income spent on goods and services.

• In this case, households initially saved ₹2000, but later reduced their savings by ₹500, meaning they are now spending ₹500 more.

• This increase in spending (or reduction in leakage) results in more money circulating in the economy, which is considered an injection into the circular flow.