Final answer:
Savings, taxes, and imports are referred to as 'leakages' in calculating the multiplier effect because they reduce the overall level of spending in an economy.
Step-by-step explanation:
Savings, taxes, and imports are referred to as 'leakages' in calculating the multiplier effect because they reduce the overall level of spending in an economy. When individuals save money, it is not spent on goods and services, leading to a decrease in aggregate demand. Similarly, when taxes are collected or imports are purchased, money flows out of the economy, causing a leakage from the circular flow of income.
These leakages reduce the value of the multiplier because they decrease the amount of new spending that can be generated from an initial injection of demand. In a closed economy, where there is no foreign trade, these leakages do not exist, leading to a higher multiplier compared to an open economy with foreign trade.