Injections and Withdrawals
The impact of injections into, and withdrawals from, the circular flow of income
- An economy’s circular flow of income is affected by things called injections and withdrawals. Withdrawals are also sometimes referred to as leakages.
- Injections comprise of investment (I), exports (X) and government spending (G).
- All of these increase the money circulating in the circular flow of income.
- Exporting goods gets money from other countries into the circular flow of income of the country being represented.
- Government spending and investment directly inject money into the economy which again increases the monetary flow in the model.
- Furthermore, any injection is affected and usually magnified by the multiplier.
- Withdrawals on the other hand come in the form of imports (M), savings (S) and taxes (T).
- They all reduce the money in the circular flow of income.
- If you save money or get taxed, you take it out of the system.
- If you spend money on imports, then money leaves to another country and so again the money in the circular flow of income reduces.
- If we add these to the circular flow of income, it looks like this: