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Injection-leakage model

Why do total leakages and total injections have to be equal?

Solution Preview

In the injection-leakage model,
injection is non-consumption expenditures on production; and
leakage is non-consumption uses of income
Injections go into the circular flow of the economy and leakages go off from the flow.

Notes:
1) The three injections included in the model are investment, government expenditures, ...

Solution Summary

Injection is non-consumption expenditures on production and leakage is non-consumption uses of income. By definition, injection and leakage are always equal. In order to see this, we can look at the closed economy without government. Make use of income identity, we can see that saving is always equal to investment, whereby saving is a leakage and investment is an injection.

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