Question

select the correct answer. which statement is true? a. savings are a leakage in the circular flow of income. b. households pay wages to businesses. c. exports are leakages in the circular flow of income. d. taxes paid to the government have no direct effect on the economy.

Explanation:

• Option A: In the circular flow of income, savings are considered a leakage as they represent money that is withdrawn from the circular flow (not immediately spent on goods/services or used for investment in a simple model).
• Option B: Businesses pay wages to households (for labor), not the other way around.
• Option C: Exports are an injection into the circular flow (money coming into the economy from abroad for domestic goods/services), while imports are leakages.
• Option D: Taxes paid to the government do have a direct effect on the economy (e.g., they reduce disposable income of households, affect business profits, and are used for government spending which impacts the economy).

Answer:

A. Savings are a leakage in the circular flow of income.