Injections & Withdrawals
Economics: Edexcel A A Level, topic 3.4.2
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.
Withdrawals/Leakages
- There are three withdrawals (also called leakages) from the Circular flow of income:
- Savings (S).
- Taxes (T).
- Imports (M).
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.
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.
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.
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.
Test yourself on Injections & Withdrawals
Which of the following are injections into the circular flow?
Which of the following is a withdrawal/leakage from the circular flow model?
Which of the following is an injection into the circular flow model?
What is the impact of more leakages than injections?
Which of the following are interactions between firms and households?