Question

Which best describes why taxes and savings are considered leakage factors?

A. They take money out of households.
B. They take money out of the economic system. *
C. They take money out of the economic sectors.
D. They take money out of the financial sector.

Answer 1

The correct answer is the second (B).

Taxes and savings deposits draw currency from the economy's circulation. This means that less money will circulate in the economy, reducing consumption and cooling economic activity. Hence, the term "leakage factors" is as if money leaked out of the economy, momentarily in the case of savings and indefinitely in the case of taxes collected. This is because, depending on your view on the fiscal scenario, the Government may decide not to put the money back into the economy.

Answer 2

Taxes and savings are considered leakage factors because B. They take money out of the economic system.

Why are taxes and savings leakage factors?

Leakage factors are those things that siphon money out of the economic system. They are called leakages because the money should circulate in the system but these factors take them out.

Taxes go to the government and savings are kept away from the economic system so both these things are leakages.

In conclusion, option B is correct.

Find out more on leakages at https://brainly.com/question/4386385.