Injections & Withdrawals (Edexcel A Level Economics A)

Revision Note

Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

Injections & Withdrawals

  • Money can enter or leave the circular flow of income in an economy

  • Injections add money into the circular flow of income and increase its size

    • Increased government spending (G)

    • Increased investment (I)

    • Increased exports (X)

  • Withdrawals or leakages remove money from the circular flow of income and reduce its size

    • Increased savings by households (S)

    • Increased taxation by the government (T)

    • Increased import purchases (M)

2-4-2---injections--withdrawals
A diagram that shows the injections and withdrawals that influence the relative size of the circular flow of income

Diagram analysis

  • The relative size of the injections and withdrawals impacts the size of the economy:

    • Injections > withdrawals = economic growth

    • Withdrawals > injections = fall in real GDP

  • Injections represent new income in the economy

  • The multiplier effect can cause the economy to grow by a greater amount than the size of the injection

    • E.g. If government spending increases, the money becomes income for households who then spend it purchasing goods/services from firms, who then spend some of it on purchasing raw materials

  • Changes to any of the factors that influence government spending, investment, consumption and net exports will increase/decrease the relative size of the circular flow of income

    • E.g. An increase in interest rates will increase savings (withdrawal), and reduce consumption and investment

Examiner Tips and Tricks

Remember to consider the net effect and proportionality of the injections and withdrawals. For example if the size of the government spending is large, it is likely to completely outweigh the combined withdrawals of savings and imports.

The size of the multiplier is dependent on the marginal propensity to consume (MPC), the marginal propensity to save (MPS), the marginal propensity to import (MPM) and the marginal propensity to be taxed (MPT). If the marginal propensity to withdraw is smaller, then the multiplier will be higher, and vice versa

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

Jenna Quinn

Author: Jenna Quinn

Expertise: Head of New Subjects

Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.