Leakages
Also called: Withdrawals · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Leakages (withdrawals) are parts of income that escape the domestic circular flow and are not spent on domestic output. The three leakages are saving, taxes and imports. Injections do the opposite and add spending to the flow. The three injections are investment, government spending and exports. Adding leakages and injections does not change the basic result: the product, income and expenditure methods still give the same annual output.
Example
Out of a salary, a worker in Chennai saves some in a bank, pays income tax and buys an imported phone. All three are leakages. When a firm spends that saved money on a new machine, it is an injection back into the flow.
Don't confuse with
- Injections: these add spending to the domestic circular flow. Leakages take spending out.