If leakages exceed injections,
A)The economy will stabilize at full employment.
B)Interest rates will rise.
C)The economy is contracting.
D)Microeconomic instability will persist.

Question

Quizplus · Accepted Answer

Leakages refer to savings, taxes, and imports, which reduce the overall spending in the economy. Injections refer to investment, government spending, and exports, which increase overall spending. If leakages exceed injections, it means there is less overall spending in the economy, leading to a contraction of the economy. Therefore, option C is the best choice.

If Leakages Exceed Injections