Question

Leakages and injections Suppose the economy is initially in equilibrium, when a decrease in decreases total leakages out of the economy. Which of the following will occur as a result of this change? Suppose the economy is initially in equilibrium, when a decrease in decreases total leakages out of the economy. Which of the following will occur as a result of this change? Check all that apply. GDP rises above planned spending. Firms experience an increase in unplanned inventory. There is a proportionate decrease in investment. Real GDP falls. Injections and leakages are equal to each other .

Answer 1

Suppose the economy is initially in equilibrium, when a decrease in Savings decreases total leakages out of the economy.

Savings are considered leakages in the economy because the represent money that is not spent but rather saved.

Which of the following will occur as a result of this change?

GDP rises above planned spending.

Savings reduces spending but as savings have reduced, there will be more spending which is unplanned and so this increase in unplanned spending will make GDP higher than planned spending.

Injections and leakages are equal to each other when real GDP is equal to aggregate expenditure.

Injections and leakages are equal when the output (GDP) and the Aggregate expenditure are the same.