The correct answer is Option (4) → Government spending
-
In the context of the circular flow of income:
- Leakages refer to any income that is taken out of the flow, reducing the overall spending and investment in the economy. Examples include:
- Savings: Money that is set aside and not spent.
- Taxes: Money collected by the government that is not immediately spent back into the economy.
- Imports: Money spent on goods and services produced outside the economy, which reduces domestic spending.
-
Government spending, on the other hand, is considered an injection into the circular flow. It adds money back into the economy, stimulating economic activity.
|
