Explain_Using_Diagrams_the_Relationship_Between_Leakages_and_Injections

Explain using diagrams the relationship between leakages, Injections and the circular flow of income AD = C+I+G-(X+M) This diagram shows the circular flow of income circular flow of income is The movement of spending and income throughout the economy, when money is entered into the circular flow of income (For example Exports) it is called an injection as money is coming into the world economy. However Money leaving the country is called a leakage, an example of this is an Export This diagram shows the circular flow of income circular flow of income is The movement of spending and income throughout the economy, when money is entered into the circular flow of income (For example Exports) it is called an injection as money is coming into the world economy. However Money leaving the country is called a leakage, an example of this is an Export Injections Investment The graph shows how an injection into the economy influences GDP, As you can see from the graph the injection in Investment has increased GDP, this is because an increased in investment (for example increase in investment in technology) would help them produce better quality products or produce products more cheaply, they would expect to make a profit from this as the company would anticipate higher demand due to the product being better quality as well as the unit cost falling so the product could be supplied cheaper. Because of the increase in technology more workers may be needed to man new machinery The graph shows how an injection into the economy influences GDP, As you can see from the graph the injection in Investment has increased GDP, this is because an increased in investment (for example increase in investment in technology) would help them produce better quality products or produce products more cheaply, they would expect to make a profit from this as the company would anticipate higher demand due to the product being better quality as well as the unit cost falling so the product could be supplied cheaper. Because of the increase in technology more workers may be needed to man new machinery Price Level LRAS Price Level LRAS AD2 AD2 AD1 AD1 GDP The graph show an injection into the economy from Government spending If the government put more money into merit goods to subsidies costs, then the suppliers could create more of the merit goods into the market at a lower cost as the government has subsidized some of the cost. If the suppliers have put goods into the market at a cheaper price, demand will increase. Showing an increase in Aggregate Demand. An increase in Government Spending will lead to an increase in employment because of businesses needing more workers to carry out jobs that the government has invested in. (E.G increase in fresh fruit and vegetables, more workers needed to harvest and package goods. The graph show an injection into the economy from Government spending If the government put more money into merit goods to subsidies costs, then the suppliers could create more of the merit goods into the market at a lower cost as the government has subsidized some of the cost. If the suppliers have put goods into the market at a cheaper price, demand will increase. Showing an increase in Aggregate Demand. An increase in Government Spending will lead to an increase in employment because of businesses needing more workers to carry out jobs that the government has invested in. (E.G increase in fresh fruit and vegetables, more workers needed to harvest and package goods. Government Spending Price Level LRAS Price Level LRAS AD2 AD2 AD1 AD1 GDP Increased Exports Increased exports from a country has increased AD, this is because when you export a good the money is being injected into our economy, creating an injection for our economy but a leakage in the other. Because there is more money in the economy. GDP increases. Increased exports from a country has increased AD, this is because when you export a good the money is being injected into our economy, creating an injection for our economy but a leakage in the other. Because there is more money in the economy. GDP increases. Price Level LRAS Price Level LRAS AD2 AD2 AD1 AD1 GDP Leakages If consumers are saving their income, then there is no effect from the AD because saving money neither increases or decreased demand. Consumer saving is bad for the economy because one, they are not spending the money, and two the multiplier effect will not be working as efficiently, if the consumers were spending all the money they had, then no money would leave the economy. Because of the main proportion of the flow of income never leaving the economy. (Hence circular flow of income) as the money is being re-spent the demand for products increased this is called the multiplier effect. If consumers are saving their income, then there is no effect from the AD because saving money neither increases or decreased demand. Consumer saving is bad for the economy because one, they are not spending the money, and two the multiplier effect will not be working as efficiently, if the consumers were spending all the money they had, then no money would leave the economy. Because of the main proportion of the flow of income never leaving the economy. (Hence circular flow of income) as the money is being re-spent the demand for products increased this is called the multiplier effect. Consumer Saving LRAS LRAS Price Level Price Level AD1 GDP Price Level LRAS Price Level LRAS Taxation If the government increase taxes, goods and services become more expensive, this decreases the demand for the good or service, which will decrease aggregate demand which will lead to the GDP falling. If the government increase taxes, goods and services become more expensive, this decreases the demand for the good or service, which will decrease aggregate demand which will lead to the GDP falling. AD1 AD2 GDP Increased Imports LRAS LRAS Price Level Price Level Increased imports mean that the economies money is being leaked from its own to a different economy. Because of money being leaked from the economy to somewhere else, GDP will decrease and so will employment due to less jobs being needed as consumers are choosing to buy products from outside of the country. Increased imports mean that the economies money is being leaked from its own to a different economy. Because of money being leaked from the economy to somewhere else, GDP will decrease and so will employment due to less jobs being needed as consumers are choosing to buy products from outside of the country. AD1 AD2 GDP