The correct answer is Option (1) → (A), (B) and (C) only
The circular flow of income model illustrates how money moves between households and firms in an economy. 'Leakages' (or withdrawals) are components of income that are removed from this continuous flow, meaning they are not immediately spent on domestically produced goods and services.
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(A) Domestic Savings: When households or individuals save a portion of their income rather than spending it on goods and services, that money is diverted out of the immediate spending stream. Therefore, domestic savings are a leakage.
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(B) Imports: When domestic consumers or firms purchase goods and services produced in other countries, the money flows out of the domestic economy to foreign producers. This expenditure does not contribute to the demand for domestically produced goods and services, making imports a leakage.
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(C) Outward Foreign Direct Investment (FDI): When domestic entities invest in businesses or assets located in foreign countries, this represents an outflow of financial capital from the domestic economy. These funds are not being spent on goods and services produced within the home country, thus acting as a leakage from the domestic circular flow of income.
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(D) Investment: Investment spending (e.g., by firms on capital goods, or households on new housing) represents spending that adds to the demand for domestically produced goods and services. Therefore, investment is considered an injection into the circular flow of income, not a leakage.
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