Part B
Question 1

Figure 1

The circular flow of income (Figure 1) shows connections between different sectors of our economic system. It revolves around flows of goods and services and factors of production between firms and households. Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production such as wages and salaries going to people in work.
Injections:
The three injections -- investment, government purchases and export. These injection expenditures, like consumption, are used to purchase aggregate production through the product markets. Most importantly, injections add to the total volume of the basic circular flow. That is, they "inject" revenue into the product markets that is used for factor payments and becomes household income. Withdrawals are increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output). (1) Investment (I), Capital spending by firms - e.g. on new technology (2) Government (G), Government expenditure - e.g. on the NHS or defense (3) Export (X), e.g. Overseas consumers buying goods and service
Leakages:
The three leakages -- saving, taxes, and imports. These leakages, like consumption, are how the household sector divides up or uses its income. Most importantly, leakages subtract from the total volume of the basic circular flow. That is, they "leak" income away from the product markets, making less available for factor payments and household income. An economy is in equilibrium when the rate of injections equal to the rate of withdrawals from the circular flow. (1) Savings (S), Put aside for future spending – e.g. saving in banks accounts and other types of deposit (2) Tax (T), Paid to the government in taxation - e.g. income tax and national insurance (3) Import (I),