Question

Why are imports, which bring goods into a country, considered a leakage factor? Imports do not generate domestic income. Domestic industry loses ground as imports increase. Imports are taxed heavily, which is a secondary leakage factor. The money paid to producers of imports leaves the country.

Answer 1

Answer: The money paid to producers of imports leaves the country.

Explanation:

Leakage factors refer to means by which money and resources leave the economic system of the country.

Imports are considered leakage factors because when goods are imported, they are bought from foreign producers and when these producers are paid, money is leaving the domestic economy.

For instance, when a Toyota is imported into the United States, the purchase price is paid to Toyota in Japan which represents a leakage of dollars out of the United States.