Leakages in the circular flow model are
A) caused by people not acting rational.
B) possible when unemployment exists.
C) reflected in the vertical long-run aggregate supply curve.
D) caused by people saving instead of spending.

Question

Quizplus · Accepted Answer

Leakages in the circular flow model occur when households save their money instead of spending it on consumption. This results in less money being available for businesses to spend on investment or for the government to use for public spending, causing a leakage from the circular flow. This can lead to economic slowdowns and can be a factor in causing recessions.

Leakages in the Circular Flow Model Are