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Leakage And Injection

Leakage (also called withdrawal) represents that part of income which is not passed on in the circular flow of income, and therefore, not available for spending on currently produced goods and services. Leakages have a concretionary effect on national income.

Injection is an exogenous addition to the income of firms or households. That is, it is an addition to the income of domestic households or firms that does not result from the immediate expenditure of the private sector.

Injections have an expansionary pressure on national income.

Injections = Leakages. For an economy to be in equilibrium, injections should be equal to leakages.

The major sources of leakages and injections are as follows:

•    Two-sector economy:
Leakage : Saving (S)
Injection : Investment :

•    Three-sector economy:
Leakage : Saving (S) + Taxes (T)
Injection : Investment (I) + Government Expenditure (G)

•    Four-sector economy:
Leakage : Saving (s) + Taxes (T) + Imports (M)
Injection : Investment (I) + Government Expenditure (G) + Exports (X).

Thus, in a four-sector economy, the condition of equilibrium of an economy is given as :

C + S + T + M = C + I + G + X

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