In the circular flow of income model, injections are the means by which money is introduced into the economy, while leakages are the ways in which money exits the economy. One of the primary injections that help compensate for leakages through savings is investment.
Investment represents spending on capital goods that will be used for future production. When businesses invest in new equipment, infrastructure, or technology, they contribute to economic activity. This injection can help offset the money that is not being spent in the economy due to savings.
Other injections that can help offset leakages include:
-
Government spending: When the government invests in public services, infrastructure, and other projects, it injects money into the economy.
-
Exports: Money earned from selling goods and services to foreign countries also acts as an injection into the economy.
Overall, investment is a key component in balancing the effects of savings on overall economic activity.