Question

Which best describes why taxes and savings are considered leakage factors? They take money out of households. They take money out of the economic system. They take money out of the economic sectors. They take money out of the financial sector.

Answer 1

B. They take money out of the economic system.

Answer 2

They take money out of the economic system

Step-by-step explanation:

In economics leakage refers to income or capital leaving the economic system rather than remaining within it and sustaining the economy. Taxes are one for of leakage as people will always avoid paying the highest taxes. For example, capital gain tax is much usually lower than income tax, therefore people who can report their income as capital gain will pay less tax and leak income from the economy. Something similar happens with savings, as it's money that no longer flows through the economic system but sits stale.