Circular flow 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 importsspending, investment and exportstaxation, savings and importstaxation, savings and exports. 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, savings and exports. Injections exceeding leakages can be described as  rising incomeseconomic growthinflationappreciation.

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  sharesumstockflow, and income, which is measured over a period of time, and is known as a  sumstockshareflow. 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. Injections create   a marginal propensity to withdrawa multiplier effectan opportunity costa budget surplus, meaning that the addition of income into the economy in turn generates further income. Leakages generate   a budget surplusa marginal propensity to withdrawa multiplier effectan opportunity cost, meaning that the removal of income from the economy reduces the ability to generate further income. In this sense, leakages can be considered   an opportunity costa multiplier effecta budget surplusa marginal propensity to withdraw.

The multiplier effect can be defined as 1  multiplied byin excess ofdivided byless than the marginal propensity to withdraw.