Saved Bookmarks
| 1. |
Explain the condition of equilibrium of income with the help of injections and leakages. |
|
Answer» Solution :The flow of national income will be in equilibrium when the injections are just equal to the leakages. If there is any DIFFERENCE between these two, then there will be fluctuations in the flow of income as there will be either expansion or contraction incircular flow. 1. Injections. Injections are the amount of money ADDED to the flow of income in an ECONOMY which increase national income. It consists of (i) Investment (I) (ii) Government expenditure (G) on services, purchases of goods, transfer payments, subsidies. (iii) Exports (X) i.e., Injection `=I+G+X` 2. Leakages. It refers to the amount of money withdrawn from the flow of income. These reduce the circular flow of income as these are withdrawals. It consists of (i) Savings (S) of households, firms and government. (ii) Taxes (T) by government. (iii) Imports (M) i.e., Leakages `=S+T+M` The condition of equilibrium of income can be shown as, Injections=Leakages `I+G+X=S+T+M` `**""`of injections `gt` Leakages, then flow of income increases. (Expansion of circular flow) `**""`If leakages `gt` injections, then flow of income DECREASES. (Contraction of circular flow) |
|