The figure given below represents the leakages and injections in an economy. Figure 10.2 In the figure:
I, I₁: Investment;
G: Government spending;
EX, EX₁: Exports;
T: Taxes;and
M: Imports.
Refer to Figure 10.2.A decline in total injections by $10:

Question

The figure given below represents the leakages and injections in an economy. Figure 10.2

In the figure:
I, I₁: Investment;
G: Government spending;
EX, EX₁: Exports;
T: Taxes;and
M: Imports.
Refer to Figure 10.2.A decline in total injections by $10:

Quizplus · Accepted Answer

A decrease in injections will cause a leftward shift of the injections line, causing the equilibrium level of income to decrease. A $10 decrease in injections will lead to a decrease in equilibrium income by a multiple of the marginal propensity to consume (MPC) - in this case, by a factor of 1/MPC = 1/(0.8) = 1.25. Therefore, equilibrium income will fall by $12.50 ($10 x 1.25), resulting in an equilibrium level of income of $300 (initial equilibrium income of $312.50 - $12.50).

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