In the context of the circular flow of income and spending, leakages refer to withdrawals from the economy that reduce the overall level of income and spending. These typically include personal income taxes, value-added taxes, and spending on imported goods and services, as they remove money from the domestic economy.
On the other hand, government transfer payments (like old-age pensions) are not considered leakages because they redistribute income within the economy rather than removing it. Instead, they inject money back into the circular flow, as recipients tend to spend this income domestically.
Therefore, among your options, the correct answer is:
Government transfer payments (e.g., old-age pensions)
This is because these payments are not leakages; they serve as injections into the circular flow of income by providing income to individuals who are likely to spend it.
The other options, like personal income tax, value-added tax, and spending on imported goods, do constitute leakages from the circular flow of the domestic economy.
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