The figure given below represents the leakages and injections in an economy.
Figure 10.3
In the figure:
S₁ and S₂: Saving functions
I: Investment
G: Government spending
EX: Net exports
-Refer to Figure 10.3. If saving is represented by S₁, at a real GDP level of $500:

Question

The figure given below represents the leakages and injections in an economy.
Figure 10.3

In the figure:
S₁ and S₂: Saving functions
I: Investment
G: Government spending
EX: Net exports
-Refer to Figure 10.3. If saving is represented by S₁, at a real GDP level of $500:

Quizplus · Accepted Answer

At a real GDP level of $500, the savings function S₁ is above the 45-degree line which means that leakages (savings) are greater than injections (investment, government spending, and net exports) in the economy. This will cause income to decrease as there is less spending in the economy. Therefore, the correct answer is B.

The Figure Given Below Represents the Leakages and Injections in an Economy