Question

a. Saving is called a leakage because it

• is less than consumption.

• is a removal from the flow of aggregate consumption.

• is put into the banking system.

• goes directly to investment.

b. Planned investment is called an injection because it

• is greater than consumption.

• comes from the banking system.

• is an addition to the flow of aggregate spending.

• goes directly to profit levels.

c. Saving must equal planned investment at equilibrium GDP in the private closed economy because when this is so,

• spending and production will be the same, and there will be no unplanned inventory or GDP changes.

• consumption and production will be the same, and there will be no unplanned inventory or investment changes.

• spending and consumption will be the same, and there will be no unplanned inventory or GDP changes.

• GDP and production will be the same, and there will be no unplanned inventory or investment changes.

d. At equilibrium GDP, there will be

• no unplanned inventories and no unplanned investment.

• unplanned inventories, but no unplanned investment.

• no unplanned inventories, but unplanned investment.

• unplanned inventories equal to unplanned investment.

Answer 1

a) Saving is called leakage because it is a removal from the flow of aggregate consumption.

b) Planned investment is called an injection because it is an addition to the flow of aggregate spending.

c) Saving must equal planned investment at equilibrium GDP in the private closed economy because when this is so spending and production will be the same, and there will be no unplanned inventory or GDP changes.

d) At equilibrium GDP, there will be no unplanned inventories and no unplanned investment.