Question

What is the effect of Leakages on the circular flow of income?

Options

• Leakages create the Production Phase.

• Leakages increase the flow of income circulating in the economy.

• Leakages reduce the flow of income circulating in the economy.

• Leakages are monetary payments for factor services and goods.

Answer 1

Leakages withdraw income from the circular flow. Savings, taxes, and imports therefore reduce the income circulating in the economy.