Chapter 17, Problem 6AA

To determine

To choose: The suitable word that best completes the sentence.

Explanation of Solution

The suitable word that best completes the sentence is offset.

The position of government is in between the circular flow of income and output. It is the responsibility of Federal government to control the leakages and injections in an economy by using the fiscal policy. However, there are some income that do not follow the circular flow of income. Some income is removed from this flow by the way of consumer saving and taxation by government. This is termed as leakage. Injections of income are made through government spending and with these injections of income leakages of income are offset.

Economics Concept Introduction

Introduction:

Circular flow of income and output- The theory of circular flow of income and output states that income flows continuously between the businesses and consumers. The money income flows from businesses to households in form of wages, rent and interest. This money income flows from households to businesses as payments for products and services from consumers.