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The circular flow of income and particular the injections and leakages have a substantial influence on the economic activity of the time. Economic activity is defined as the production and distribution of goods and service in an economy,

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Introduction

Explain how changes in the levels on injections and leakages can change the level of economic activity The circular flow of income and partrticular the injections and leakages have a substantial influence on the economic activity of the time. Economic activity is defined as the production and distribution of goods and service in an economy, processes like Government expenditure (G), investment (I), exports (X), imports (M), savings (S), and taxation (T) all play an important role in the level of activity within an economy. Savings is a significant process in the circular flow of income. This process is classified as a leakage as it involves people removing funds which would otherwise be spent. ...read more.

Middle

This means that the savings can be used as finance which may result in economic stimulas. The inverse effect of spending occurs when there is a great amount of investment within an economy. Investment is classified as an injection as it is an input of funds which may be used in the production process. These funds are fueled by savings which are distributed by investment agencies to individuals and more importantly business. The funds that are recived by business allows for expansion. This expansion increases the potential for a greater production and distribution, which inturn highlights the relationship between the injection of investment and economic activity. ...read more.

Conclusion

An import results in funds leaving an economy and entering another , this makes them a leakage. An export on the other hand introduces forign funds into the economy classifying them as injections. When an economy has increased imports, domestic markets are being demote. This slows production and in turn economic activity. However if there are increses in exports, domestic markets are producing at a greater rate as well as this more of an economies resources are being employed. This increase in productin is translated to a Increase in economic activity. In conclusion the link between economic activity and leakages & injections is a profound one. And a change in any of the economic factors (IGX and STM) has a substantial effect on Economic activity. (IGX goes up economic activity follows, and if STM goes up economic activity slows.) ...read more.

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