The flow of money between households and producers is interrupted by leakages (withdrawals) from the money flow and injections (additions) to the money flow, as a result of the economic activities of the government and the foreign and financial sectors.

The leakages and injections take place continuously.

Leakages (L)

Leakages occur through the following items that withdraw money from the money stream.

Forms of leakages:

• Savings (S): Money flows from households and producers to financial institutions such as banks. Net savings is savings minus loans. Net savings is a withdrawal from the flow.
• Taxes (T): Money flows from the economic participants to the government. Net tax leaves the flow. Net tax is tax minus subsidies and grants.
• Expenditure on imports (M): Money flows as payments to other countries when goods and services are imported.

Total leakages are the sum of net savings (S), net tax (T) and expenditure on imports (M).

Total leakages are indicated by L = S + T + M.

The economic implication of leakages is that they reduce the value of total production, income and expenditure.

Injections (J)

Injections are items that add money to the money stream.

Forms of injections:

• Investment (I): Money is spent on capital goods and inventory by households and producers. The money comes from savings and loans at financial institutions.
• Government expenditure (G): Money is spent on economic and social services by the government. The money comes from taxation.
• Net exports (X): Money is added to the money stream when foreign producers and consumers pay for products that were exported.

Total injections are the sum of investment (I), government expenditure (G) and income earned from exports (X).

Total injections are indicated by J = I + G + X.