Final answer:
A firm's tax savings from depreciation is known as a depreciation tax shield, which reduces its tax liability. The R&E tax credit functions similarly by providing tax relief to encourage business investments. Leakages such as savings, taxes, and imports reduce spending in the economy, affecting the multiplier effect.
Step-by-step explanation:
The tax savings generated as a result of a firm's tax-deductible depreciation expense is referred to as a depreciation tax shield. This is because the depreciation expense itself reduces a firm's taxable income, thereby lowering its tax liability. Companies can then reinvest the saved funds back into the business, potentially driving further growth and development. Important to note are policies like the research and experimentation (R&E) tax credit, which similarly aim to foster business investment by lessening tax burdens related to specific activities like research and development.
In macroeconomic terms, leakages like savings, taxes, and imports are considered so because they detract from the total spending in an economy, impacting the overall multiplier effect. For instance, if people are saving money instead of spending it, this money is not immediately available to stimulate economic activity. Similarly, taxes collected by the government and money spent on imports represent funds that are not spent within the domestic economy, thus they are 'leaking out' of the circular flow of income.