Question

When an individual buys foreign goods, this spending is known as ........

• A. Injection in the economy
• B. Exchange rate market
• C. Leakages from economy
• D. Direct investment

Hint:

Imports are leakages; exports are injections in the circular flow of income.

Answer 1

The Correct Option is C

Step 1: Recall the concept of the circular flow of income.
- Injections: These are additions to the flow of money in an economy, such as investment, exports, and government spending.
- Leakages: These are withdrawals from the flow of money, such as savings, taxes, and imports.
Step 2: Analyze the impact of imports.
Purchasing foreign goods results in money leaving the domestic economy and entering another country. This decreases domestic demand and is categorized as a leakage.
Step 3: Discard incorrect options.
- (A) Injection: This is the opposite of a leakage.
- (B) Exchange rate market: This pertains to foreign exchange trading.
- (D) Direct investment: This involves acquiring assets across borders, distinct from imports.
Final Answer: \[\boxed{\text{Leakages from economy}}\]