If leakages are greater than injections,equilibrium output will be
A)Less than full-employment output,and a recessionary gap will occur.
B)Less than full-employment output,and an inflationary gap will occur.
C)More than full-employment output,and a recessionary gap will occur.
D)More than full-employment output, and an inflationary gap will occur.

Question

Quizplus · Accepted Answer

If leakages (savings, taxes, and imports) are greater than injections (investment, government spending, and exports), it means that there is less spending in the economy. This can lead to a decrease in output, as businesses may reduce production in response to weaker demand. This can result in a recessionary gap, where the equilibrium output is less than the full-employment output. Therefore, option A is the correct choice.

If Leakages Are Greater Than Injections,equilibrium Output Will Be