why is taxation regarded as a leakage and government spending as an injector?
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❤In economics, a leakage is a diversion of funds from some iterative process. For example, in the Keynesian depiction of the circular flow of income and expenditure, leakages are the non-consumption uses of income, including saving, taxes, and imports. ...
Cash leakage, in this case, lowers the ability of credit creation.
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Injections refer to the flow of investments through government spending in the economy which leads to multiple flow and expansion of output in the economy. It refers to the flow of income in the economy. Leakage happens when the money from the economy is removed in the form of income, taxes or savings.
Explanation:
- When the income from the economy is kept aside in the form of savings, or taxes then it reduces the flow of income within the economy and it is referred to as leakage.
- On the other hand, when the money is injected in the economy due to government spending and exports there is a flow of income that is referred to as injections.
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