Injections And Withdrawals

Question 1

What are injections and give examples

Answer 1

Injections add money into the circular flow of income and increase its size
Increased government spending (G)
Increased investment (I)
Increased exports (X)

Question 2

What are withdrawals or leakages and give examples

Answer 2

Withdrawals or leakages remove money from the circular flow of income and reduce its size
Increased savings by households (S)
Increased taxation by the government (T)
Increased import purchases (M)

Question 3

How does the size of injection done withdrawals impact size of the economy?

Answer 3

Injections > withdrawals = economic growth
Withdrawals > injections = fall in real GDP

Question 4

What is the multiplier effect?

Answer 4

Because when an injection into the circular flow, causes the real national income to increase by a greater amount

Question 5

How does the multiplier affect impact the economy?

Answer 5

The multiplier effect can cause the economy to grow by a greater amount than the size of the injection
E.g. If government spending increases, the money becomes income for households who then spend it purchasing goods/services from firms, who then spend some of it on purchasing raw materials

Question 6

What can cause a change in the size of the circular flow?

Answer 6

Changes to any of the factors that influence government spending, investment, consumption and net exports will increase/decrease the relative size of the circular flow of income
E.g. An increase in interest rates will increase savings (withdrawal), and reduce consumption and investment