National Income GapFill

National income refers to the amount of money in an economy over time. We can identify two components of national income. The first, injections, increases the amount of money in the national circular flow. Types of injections are  spending, investment and exportstaxation, investment and importstaxation, savings and importsspending, investment and imports. The second, leakages, reduces the amount of money in the national circular flow. Types of leakages are:  taxation, savings and importsspending, investment and exportsspending, investment and importstaxation, investment and imports. Injections exceeding leakages can be described as  economic growthrising incomesappreciationinflation.

In understanding the dynamics of injections and leakages, it is important to distinguish between wealth, which is measured at a single point in time, and is known as a  flowgrowthsumstock, and income, which is measured over a period of time, and is known as a  stockflowfallshare. Measuring national income over a period of time, rather than at a single point in time, allows us to capture the effect of injections and leakages in the economy. HIGHER LEVEL FROM HERE Injections create   a budget surplusa multiplier effecta marginal propensity to withdrawan appreciation, meaning that the addition of income into the economy in turn generates further income. Leakages generate   an opportunity costa multiplier effecta marginal propensity to withdrawa monetary expansion, meaning that the removal of income from the economy reduces the ability to generate further income. In this sense, leakages can be considered   a monetary expansionan opportunity costa marginal propensity to withdrawa multiplier effect.

The multiplier effect can be defined as 1  less thandivided bymultiplied bysubtracted from the marginal propensity to withdraw.