What Do U Mean By The Term Leakages In Multiplier In Economics?


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Ethan Horsley answered
Leakages in an Economy, are any avenues through which money leaves the Economy. This can include when people with large amounts of money decide to bank off shore (usually in Swiss accounts to avoid paying Tax). Lets assume that this amount of money is £10 million. When this money is placed in an off shore account, that means that the UK banks, do not have access to this £10million.
    However, the main leakage in an economy is imports. When a consumer purchases an import from a foreign country, the money that was earned in their economy, is spent in a different economy, and so is no longer part of the Monetary Cycle of that Economy.

In terms of Multiplier, this money that is spent over seas, is not spent in a domestic shop; so is not given to a domestic company; so is not used as wages to somebody in the domestic economy; so is not then able to be spent again in that economy, and so on .....

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