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Injections it means the addition or introduction of income to the circular flow of an economy They influence the level of economic activity and determine the overall equilibrium in an economy. Injections into the circular flow of income are a result of money borrowed by households and firms from different external sources, like financial institutions
However, this additional income does not result in an immediate expenditure The concepts of injections and withdrawals (also known as leakages) are integral to understanding the circular flow of income model Therefore, injections increase the flow of income in an economy.
Injections and leakages just as money is injected into the economy, money is withdrawn or leaked through various means as well.
The leakages are the savings and taxes and imports while the injections are the investment and government spending and exports Importance of circular flow diagram the following points explain the importance of the circular flow model Understanding the economy the circular flow model is important in understanding the state of a country’s. The full circular flow model with leakages and injections the full circular flow model includes leakages and injections from and to the domestic economy
It also adds the extra sectors that account for those leakages and injections i.e., government, foreign trade, and the banking and finance sector. Injections increase the flow of income Injections can take the forms of investment, government spending and exports As long as leakages are equal to injections, the circular flow of income continues indefinitely
Financial institutions or capital market play the role of intermediaries.
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