Injections and Withdrawals (2.4)

What do the concepts of injections and withdrawals influence?

The level of economic activity and determine the overall equilibrium in an economy

What are injections?

Additions to the economy’s circular flow of income, increasing the total spending an economic activity

The 3 types of injections

1. Investment

2. Government spending

3. Exports

What are withdrawls?

Removals of money from the circular flow of income, reducing the total spending and economic activity

3 types of withdrawals?

1. Savings

2. Taxes

3. Imports

How do injections exceeding withdrawals lead to economic growth?

When Injections exceed withdrawals, there is an increase in national income leading to economic growth

How do withdrawals exceeding injections lead to economic contraction?

When withdrawals exceed injections, there is a decrease in national income, leading to economic contraction

Real world example of injections and withdrawls?

The 2008 financial crisis, when many government increased spending and reduced taxes to stimulate their economies and offset the decline in private sector spending