When Saving Leaks Out of the Circular Flow of Income

question 129

Multiple Choice

When saving leaks out of the circular flow of income and spending,

• A)total income necessarily falls.
• B)it leaks out of the financial system.
• C)it flows to borrowers.
• D)it increases the size of the spending flow.

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Definitions:

Income Effect

A phenomenon where changes in an individual's income lead to changes in the quantity demanded of a good or service.

Substitution Effect

The economic principle that as the price of a good increases, consumers will replace it with less expensive alternatives.

Normal Good

A product that sees an increase in demand as people's incomes increase, and a decrease in demand when their incomes decrease.

Housing

Refers to the provision and availability of homes and buildings for habitation by individuals and families.