Three VariationsThe injections-leakages model comes in three common variations, each based on a different combination of the four macroeconomic sectors, and thus a different number of injections and leakages. The circular flow model shows where money goes and what it's exchanged for. The injections-leakages model is based on the principles of Keynesian economics and provides an alternative to the standard aggregate expenditures Keynesian cross analysis. The third sector in the model is the Capital Market sector which consists of all institutions engaged in lending and borrowing money including banks and non-banking financial institutions. Such social upheavals are commonplace in communities affected by mining projects in Ghana.
Auburn, Alabama: Ludwig von Mises Institute. The main injection provided by this sector is the exports of goods and services which generate income for the exporters from overseas residents. Business is another key sector consisting of firms engaged in producing and distributing goods and services. The economy will only be in equilibrium if injections equal leakages. The factors of production - land, labor, capital, and entrepreneurship - have prices that we call rent, wages and profit.
The situation is exacerbated by the growing exclusive use of surface mining technology by mines coming on-stream since the reforms. This has constrained employment opportunities in the sector. In the capitalist mode of production, the difference is that in the former case, the new created by wage-labour is spent by the employer on consumption or hoarded , whereas in the latter case, part of it is reinvested in production. The 'goods and services' branch represents the total output of the economy and the 'expenditure on goods and services' branch represents the total expenditure of the economy. This brings us to another key point. Basically the economy would face a cycle of decreasing expenditure, falling production, lower income and higher unemployment rates until the economy collapsed.
Government taxes leak out of the circular flow model, and then government spending injects them back into the economy. An example of a tax collected by the government as a leakage is and an injection into the economy can be when the government redistributes this income in the form of , that is a form of government spending back into the economy. Otherwise, firms will find their stocks build up or disappear and change their output levels accordingly to allow for the different saving plans and, therefore, consumption plans of the households. Now, realized actual leakages from the spending streams and realized actual injections into the spending streams are what actually happened. Injection is an exogenous addition to the income of firms or households.
This matter and low entropy energy and the ability to absorb waste exists in a finite amount, and thus there is a finite amount of inputs to the flow and outputs of the flow that the environment can handle, implying there is a sustainable limit to , and therefore growth, of the economy. The three leakages are saving, , and. However, it cannot be ignored that the economy intrinsically requires and the creation of waste that must be absorbed in some manner. Savings are considered a leakage from the circular flow, as it is money that has been taken out from the flow. Governments levy taxes on households and businesses in order to provide certain benefits to everyone. Economics includes the investigation of how society deals with its rare assets In many social orders, assets are allotted through the consolidated choices and activities of a huge number of family units and firms. The diagram above has taken the first circular flow diagram a step further.
To counteract this leakage, there is an injection of investment. Leakages reduce the flow of income. Circular Flow of Income effects of saving To manage this problem, if disequilibrium were to occur in the five sector circular flow of income model, changes in expenditure and output will lead to equilibrium being regained. Each of the above sectors receives some payments from the other in lieu of goods and services which makes a regular flow of goods and physical services. Imported goods are one way this may happen, transferring money earned in the country to another one.
We also have the banking system that facilitates the exchange of money and, as we'll see in a minute, helps to productively turn savings into investment in order to grow the economy. The foreign sector box has been added on the right of the diagram. Withdrawals on the other hand are the things that are being taken out of the economy such as imports. Without leakages and injections there would be no circular flow, without which the economy would run as it does now. The idea is that as households spend money of goods and services from firms, the firms have the means to purchase labor from the households, which the households to then purchase goods and services.
In most economies in the world, the amount that is invested over the long term is closely related tothe amount that the economy saves. Margie deposits the rest of her income into a savings account at the bank. There are no injections into this circularflow and no leakages from the circular flow like saving at this stage. As a result the government has the ability to offset any undesirable outcome from the inequality of investment. . Expenditure on investment basically results in more spending, higher rates of production, greater employment and levels of income in the economy. Model of the circular flow of income and expenditure Alternatively, one can think of these transactions in terms of the monetary flows that occur.