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CA Foundation · Business Economics · Determination of National Income

Which of the following is an example of an injection into the circular flow of income in an open economy?

Exports are an injection into the circular flow because foreign buyers spend money on domestically produced goods and services, adding to income. Imports, taxes and household saving are leakages, since they take income or spending out of the domestic flow.

  1. AExportsCorrect
  2. BImports
  3. CPersonal income tax
  4. DHousehold saving

Explanation

Injections add spending to the circular flow: investment, government spending and exports. Imports, taxes and saving are leakages that draw income out of the flow. Exports bring in foreign demand for domestic output, so they are an injection.

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