Understanding Leakages, Injections, and Economic Factors

1. LEAKAGES/INJECTIONS S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS

2. LEAKAGES/INJECTIONS S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS LEAKAGE-----OCCURS WHEN THE EARNER OF INCOME USES THAT INCOME FOR SOMETHING OTHER THAN THE CONSUMPTION OF GOODS OR WHEN MONEY IS SPENT ON FOREIGN-PRODUCED GOODS. (EG. SAVING, PAYING TAXES, AND IMPORTING FOREIGN GOODS)

3. S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS INJECTION-----OCCURS WHEN GOODS ARE PURCHASED BY SOMETHING OTHER THAN DOMESTIC HOUSEHOLDS. (EG. INVESTMENT (PURCHASE BY BUSINESS), G (PURCHASE BY GOVERNMENT), EXPORTS (PURCHASE BY FOREIGNERS)

4. S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS OCCURS WHEN SAVING AFTER TAX INCOME IS NOT USED FOR CONSUMPTION.

5. S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS NET TAXATION Taxation (income leaving households and going to government) – Transfer Payments (income transferred from government to households). Represents the net amount of annual income that leaves households and goes to government.

6. S + NET TAXATION + IMPORTS = ACTUAL INVESTMENT + G + EXPORTS IMPORTS Spending on foreign-produced output.

7. BUS. $5 $40 BUS. INCOME Profit $10 GOV. GOV. INCOME DEP. COST $5 $5 TAX COST $5 Production Cost LABOR $10 F LABOR $10 LAND $5 C A FACTOR O $30 LAND $5 C CAPITAL $5 INCOME S T CAPITAL $5 T ENTREPRENEURIAL O R ABILITY $10

8. - GDP INCOME -

9. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION

10. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION GDP = INCOME = CONSUMPTION + S + NET T THIS COVERS EVERY POSSIBLE THING THAT CAN HAPPEN TO INCOME IN A YEAR!!!!!!!!!!!

11. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION OF DOMESTICALLY PRODUCED OUTPUT OF DOMESTICALLY PRODUCED OUTPUT GDP = INCOME = CONSUMPTION + S + NET T HOW WAS THE INCOME EARNED THAT WAS NOT USED FOR CONSUMPTION (to bring output into U.S. households)?

12. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION OF DOMESTICALLY PRODUCED OUTPUT OF DOMESTICALLY PRODUCED OUTPUT GDP = INCOME = CONSUMPTION + S + NET T IT COULD ONLY HAVE BEEN EARNED PRODUCING DOMESTIC (U.S.) OUTPUT.

13. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION OF DOMESTICALLY PRODUCED OUTPUT OF DOMESTICALLY PRODUCED OUTPUT GDP = INCOME = CONSUMPTION + S + NET T BUT IT WAS NOT USED TO BRING OUTPUT INTO U.S. HOUSEHOLDS. SO WHERE IS THAT OUTPUT, (THE PART THAT WAS PRODUCED IN THE U.S)?

14. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION OF DOMESTICALLY PRODUCED OUTPUT OF DOMESTICALLY PRODUCED OUTPUT GDP = INCOME = CONSUMPTION + S + NET T IT MUST EITHER BE IN U.S. BUSINESSES (ACTUAL I), SOME LEVEL OF GOVERNMENT IN THE U.S. (G), OR OVERSEAS (EXPORTS).

15. ASSUME: STANDARDIZED BOXES OF FINAL GOODS EACH PRICED AT $40

16. GOVERNMENT HOUSEHOLDS BUSINESS OVERSEAS BOX WAREHOUSE

17. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION OF DOMESTICALLY PRODUCED OUTPUT $360 9 BOXES $360

18. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION $360 9 BOXES $360 $160 $200

19. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION $360 9 BOXES $360 $160 $200 $200 = S + NET T

20. GOVERNMENT HOUSEHOLDS BUSINESS OVERSEAS BOX WAREHOUSE

21. GDP = INCOME = CONSUMPTION + INCOME NOT USED FOR CONSUMPTION $360 9 BOXES $360 $160 $200 $200 = S + NET T $360 = S + NET T + M (WHICH IS 160)

22. GOVERNMENT HOUSEHOLDS BUSINESS OVERSEAS BOX WAREHOUSE

23. $360 = ACTUAL I + G + EXPORTS $360 OR 9 BOXES $80 OR 2 BOXES $80 OR 2 BOXES $200 OR 5 BOXES

24. LEAKAGES OF $360 = INJECTIONS OF $360

25. GOVERNMENT HOUSEHOLDS BUSINESS Because Saving and Net Taxation = $200, these 5 boxes did NOT go to households. They are, therefore, available to go somewhere else. OVERSEAS BOX WAREHOUSE

26. GOVERNMENT HOUSEHOLDS BUSINESS Because these 2 boxes which were imported went to households rather than 2 more domestically-produced boxes going to households, these 2 domestically-produced boxes were available to export. OVERSEAS BOX WAREHOUSE

27. GOVERNMENT HOUSEHOLDS BUSINESS We’ve accounted for 2 imported boxes. Here are the other 2. OVERSEAS BOX WAREHOUSE

28. S + NET T = $200, LEAVING 5 DOMESTICALLY-PRODUCED BOXES AVAILABLE TO GO SOME PLACE OTHER THAN DOMESTIC HOUSEHOLDS. M = 160, LEAVING 2 MORE DOMESTICALLY-PRODUCED BOXES AVAILABLE TO GO SOME WHERE ELSE AND MAKING 2 MORE IMPORTED BOXES AVAILABLE FOR ACTUAL I AND G.