Consider the circular flow of income in a four sector economic model. Which of the following components constitutes a leakage from the circular flow?

💡 Solution & Explanation

Household savings represent income that is not consumed domestically and flows out of the expenditure stream, functioning as a leakage. Injections into the circular flow include investments, government spending, and exports which counteract leakages to maintain equilibrium national income. Neglecting these flows can lead to deflationary spirals. National income accounting framework relies on the identity that total leakages equal total injections in macroeconomic equilibrium.