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What is term used to refer the ‘exports to foreigners’ in the circular flow of income diagram?
injection
Investment
expenditure
leakage
injection
In the circular flow of income, injections are additions to the economy that do not originate from household consumption. Exports represent an inflow of foreign currency into the domestic economy for goods and services, thus acting as an injection alongside investment and government spending.
In the circular flow of income, injections are additions to the economy that do not originate from household consumption. Exports represent an inflow of foreign currency into the domestic economy for goods and services, thus acting as an injection alongside investment and government spending.
This concept forms the macroeconomic foundation of the National Income Accounting framework, primarily governed by the concepts developed in the Keynesian model of aggregate demand.
Injections increase the level of economic activity in the circular flow model.
The primary components of injections are Investment (I), Government Spending (G), and Exports (X).
Leakages, conversely, are withdrawals from the circular flow consisting of Savings (S), Taxes (T), and Imports (M).
Exports are termed injections because they bring money into the domestic income stream from abroad.
The equilibrium condition in a four-sector economy occurs when Total Injections (I + G + X) equal Total Leakages (S + T + M).
Option B (Investment) is an injection but is not the specific term used for foreign trade receipts. Option D (Leakage) refers to outflows like imports or savings.
Option C (Expenditure) is a broad term encompassing both domestic consumption and government outlays, not specifically synonymous with foreign trade inflow.
A is correct — Exports represent an injection of money into the circular flow of income from the foreign sector.
Always remember that in balance of payments accounting, exports are a credit item (inflow), which directly links to the concept of 'injections' in macroeconomic flow models.
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