Disequilibrium
Self-study Notes
Disequilibrium:
This happens when the flow of money into the economy (injections) does not match the
flow of money out (leakages), disrupting the circular flow of income.
Injections:
These are sources of money added to the economy, such as:
Investment:
Spending on capital goods like machinery and infrastructure.
Government Spending: Expenditures on public services, infrastructure, and welfare.
Exports:
Income from selling goods and services to foreign markets.
Leakages:
These reduce the flow of money in the economy and include:
Savings:
Money set aside by households or businesses.
Taxes:
Money collected by the government.
Imports:
Spending on foreign goods and services.
Effects of Imbalance:
If injections exceed leakages, there’s more money circulating, boosting demand,
production, and economic growth.
If leakages exceed injections, demand and production decline, leading to economic
contraction.
Equilibrium:
A balanced economy occurs when injections equal leakages, ensuring steady economic
performance.
Policy Implications: Governments and policymakers use tools like fiscal and monetary
policies to adjust injections and leakages, promoting stability and preventing inflation or
recession.