ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Leakage is an economic term that describes capital or income that escapes an economy or system in the context of a circular flow of income model. It results in a gap between supply and demand.

Detailed explanation-2: -Some transactions take money out of the economy. That is, the money is not being utilised elsewhere in the economy. These are leakages.

Detailed explanation-3: -In economics, leakage refers to capital or income that diverges from some kind of iterative system. Leakage is usually used in relation to a particular depiction of the flow of income within a system, referred to as the circular flow of income and expenditure, in the Keynesian model of economics.

Detailed explanation-4: -Money flows clockwise, while goods, services, and resources flow counter-clockwise. The circular flow model is a simple tool for learning about the economy. It shows the relationship between households and businesses and how these different decision-makers in the economy fit together.

Detailed explanation-5: -In the circular flow model, the savings are called the leakage as it reduces the purchasing power of households.