Which three letters that represent leakage in the circular flow of income

Answer 1

In the circular flow of income model, the three letters that represent leakage are:

1. S - Savings: When households save part of their income instead of spending it, this money is taken out of the flow of income.

2. T - Taxes: Taxes collected by the government represent a leakage from households and businesses that reduces the amount of money available for consumption and investment.

3. M - Imports: When a country imports goods and services, money flows out of the domestic economy, leading to a leakage from the circular flow.

These leakages can reduce the overall level of economic activity if not offset by injections (like investments, government spending, or exports).