What happens to economic activity when injections are greater than leakages?

What happens to economic activity when injections are greater than leakages?

• A. Economic activity increases
• B. Economic activity decreases
• C. Economic activity stays the same
• D. Economic activity fluctuates

Answer: (A)

Injections feed money into the economy’s spending stream, while leakages take money out. When injections exceed leakages, overall demand is higher than what is being withdrawn, so total spending rises. That stronger demand prompts firms to produce more, hire more workers, and increase incomes, which then boosts consumption and further raises demand. The result is an expansion in economic activity, with output (GDP) growing until leakages rise enough (through higher saving, taxes, or imports) to balance the injections again. So economic activity increases.

Injections feed money into the economy’s spending stream, while leakages take money out. When injections exceed leakages, overall demand is higher than what is being withdrawn, so total spending rises. That stronger demand prompts firms to produce more, hire more workers, and increase incomes, which then boosts consumption and further raises demand. The result is an expansion in economic activity, with output (GDP) growing until leakages rise enough (through higher saving, taxes, or imports) to balance the injections again. So economic activity increases.