PRC-3 · Chapter 9 · Question 5 of 45
Within the circular flow of income, households earn income by providing factors of production to firms. If a household saves a large portion of its income in a bank rather than spending it, what is this considered in economic terms?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A withdrawal / leakage
Explanation
Savings, taxation, and imports are considered withdrawals or leakages from the circular flow of income because they remove money from immediate domestic consumption.
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