Answer
Saving is called a leakage because saving means a withdrawal of spending from the economy’s circular flow of income and expenditures. Investment is considered injection because it inject spending into the income expenditures stream. Saving must equal planned investment in a private closed economy because an excess of saving or undersaving will reduce or increase real GDP. Unplanned changes in inventories are constant at equilibrium GDP because firms won’t get profit if there is an excess of inventories. They will cut back on production and reduce real GDP.
Work Step by Step
Saving causes consumption to be less than total output this consumption will be insufficient to remove domestic output from the shelves.
