Leakages-Injections%20Approach%20to

1
Leakages-Injections Approach to Income
Determination
A Leakage occurs when household income is
diverted from domestic product markets
Y C S M T
Leakages
Income
Imports
Net taxes
Saving
Consumption
2
Injections
Injections are expenditures made in domestic
product market by spending units other than
domestic households
Government
Domestic ProductMarkets
Exports
Investment
3
Example
What ifpotential GDPis 650? Atfull-employment
injections donot fully offsetleakages
4
Leakages,Injections
The graph
S T M
230
190
I G X
0
550
650
Real GDP Y
5
Paradoxically, an effort by the public tosave
more mightresult in their savingless
Leakages,Injections
S T M
190
I G X
0
550
500
Real GDP Y
Paradox of thrift
?S??Ca ??AE?via k effect ??Y ??S
6
Deficit Spending has an expansionary effect on
GDP and Employment
government spending
If G gt T, then governmentis injecting more into
circular flow than it iswithdrawing.
Ceterisparibus, Y and employmentwill increase
Y GDP
net taxes