Question

Why is saving called a leakage? Why is planned investment called an injection? Why must saving equal planned investment at equilibrium GDP in the private closed economy? Are unplanned changes in inventories rising, falling, or constant at equilibrium GDP?

Answer 1

Saving is called a leak because money is not used in the economy in a particular way it is leaked out of the economy.

Explanation:

A planned investment is called an injection because capital investments are moved into the existing economy. This method is used to expand a business.

To avoid savings leakage savings must be equivalent to planned GDP equilibrium investment in the private closed economy. The leakage is the non-consumption use of income, that includes savings,taxes and imports.

At equilibrium GDP there will not be any changes in unplanned inventories because the expenditures will exactly equal the planned output levels that include consumer goods and services and planned investment. Hence, There is no unplanned investment and no unplanned inventory changes.