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CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

In a four-sector circular flow model, which pair correctly lists an injection and a leakage associated with the foreign sector?

Exports are the injection and imports are the leakage. Foreign buyers' spending on domestic goods adds to the circular flow, while domestic spending on imported goods flows out of the economy and reduces domestic income.

  1. AInjection: imports; Leakage: exports
  2. BInjection: exports; Leakage: importsCorrect
  3. CInjection: exports; Leakage: exports
  4. DInjection: imports; Leakage: imports

Explanation

Exports bring in spending by foreigners on domestic output, adding to the domestic flow, so they are injections. Imports mean domestic income is spent on foreign goods, so money leaves the flow and imports are a leakage. The reverse pairing swaps the two.

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