3.4.2

Injections & Withdrawals

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Withdrawals and Injections

Withdrawals refer to flows of money leaving the circular flow of income and injections refer to flows of money into the circular flow of income.

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Withdrawals/Leakages

  • There are three withdrawals (also called leakages) from the Circular flow of income:
    • Savings (S).
    • Taxes (T).
    • Imports (M).
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Injections

  • There are three injections into the Circular flow of income:
    • Exports (X).
    • Investment (I).
    • Government Spending (G).

Equilibrium of Withdrawals and Injections

If injections = withdrawals, the national economy will be in equilibrium and there will be no tendency for change.

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Changes in withdrawal/injection

  • If injections exceed withdrawals, then the circular flow of income will expand. And so national income will rise.
  • If leakages exceed injections, then the circular flow of income will shrink. And so national income will fall.
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Impact of changes - expansion

  • You can use this model to analyse the macroeconomic impact of an event.
    • E.g. if the government decides upon expansionary fiscal policy and increases government spending, this raises injections.
    • E.g. if injections exceed withdrawals, the circular flow of income will expand and national income will rise.
Illustrative background for Impact of changes - shrinkageIllustrative background for Impact of changes - shrinkage ?? "content

Impact of changes - shrinkage

  • You can use this model to analyse the macroeconomic impact of an event.
    • E.g. if there is uncertainty (low animal spirits), say, because of the risk of a break up of the European Union (EU), then consumers will save more (savings is a leakage) and firms will invest less (investment is an injection).
    • So if leakages exceed injections, the circular flow of income will shrink and national income will too.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

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