Stock and flow, leakage and injection (Class 12 macroeconomics) Video Lecture

Ans. In macroeconomics, stock refers to the quantity of a variable at a specific point in time, while flow refers to the rate at which the variable changes over time. For example, the stock of money in an economy represents the total amount of money available at a particular moment, while the flow of money represents the rate at which it is being spent or earned.

Ans. Leakage and injection are terms used in macroeconomics to describe the flow of income out of or into an economy. Leakage refers to the outflows of income from the circular flow of income, such as savings, taxes, and imports. On the other hand, injection refers to the inflows of income into the circular flow, such as investment, government spending, and exports.

Ans. Leakage and injection play a crucial role in determining the equilibrium level of income in an economy. When leakage exceeds injection, it leads to a decrease in the overall level of income in the economy. Conversely, when injection exceeds leakage, it leads to an increase in the overall level of income. The equilibrium level of income occurs when leakage equals injection, resulting in a stable economy.

Ans. Examples of leakage include savings, taxes, and imports. When individuals save a portion of their income, it is considered a leakage from the circular flow. Taxes also act as a leakage since they reduce the disposable income available for spending. Imports represent a leakage as well, as they involve spending on goods and services produced outside the domestic economy. Examples of injection include investment, government spending, and exports. Investment refers to the expenditure on machinery, equipment, and infrastructure, which adds to the overall income in the economy. Government spending, such as on public projects or welfare programs, injects funds into the circular flow. Exports also contribute to injection as they represent income generated from selling domestically produced goods and services to other countries.

Ans. To achieve economic stability, the total leakage in an economy should be equal to the total injection. This balance ensures that the economy operates at its equilibrium level of income. Governments can influence this balance through fiscal policies. For example, during an economic downturn, the government can increase its spending (injection) or reduce taxes (decrease leakage) to stimulate economic activity and restore equilibrium. Similarly, in times of inflation, the government can reduce spending or increase taxes to reduce injection and balance the leakage.