Edexcel A Level Economics A:复习笔记2.4.2 Injections & Withdrawals

Injections & Withdrawals

  • Money can enter or leave the circular flow of income in an economy
  • Injections add money into the circular flow of income and increase its size
    • Increased government spending (G)
    • Increased investment (I)
    • Increased exports (X)
  • Withdrawals or leakages remove money from the circular flow of income and reduce its size
    • Increased savings by households (S)
    • Increased taxation by the government (T)
    • Increased import purchases (M)

2-4-2---injections--withdrawals

A diagram that shows the injections and withdrawals that influence the relative size of the circular flow of income

 

Diagram Analysis

  • The relative size of the injections and withdrawals impacts the size of the economy:
    • Injections > withdrawals = economic growth
    • Withdrawals > injections = fall in real GDP
  • Injections represent new income in the economy
  • The multiplier effect can cause the economy to grow by a greater amount than the size of the injection
    • E.g. If government spending increases, the money becomes income for households who then spend it purchasing goods/services from firms, who then spend some of it on purchasing raw materials
  • Changes to any of the factors that influence government spending, investment, consumption and net exports will increase/decrease the relative size of the circular flow of income
    • E.g. An increase in interest rates will increase savings (withdrawal), and reduce consumption and investment

Exam Tip

Remember to consider the net effect and proportionality of the injections and withdrawals. For example if the size of the government spending is large, it is likely to completely outweigh the combined withdrawals of savings and imports.

The size of the multiplier is dependent on the marginal propensity to consume (MPC), the marginal propensity to save (MPS), the marginal propensity to import (MPM) and the marginal propensity to be taxed (MPT).

 

 

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