A leakage occurs in an economy when:
A) part of business revenue does not end up as income in the circular flow.
B) transfer payments grow during recessions in an economy.
C) the government ends up spending more on fiscal policy than it intended to spend.
D) part of income is not spent on the country's output but is used for savings, taxes, or imports.

Question

Quizplus · Accepted Answer

Leakages in an economy refer to the withdrawal of potential spending from the economy's circular flow of income and expenditure. Savings, taxes, and imports are classic examples of leakages because they represent income that is not spent on domestically produced goods and services, thereby reducing the overall level of economic activity.

A Leakage Occurs in an Economy When