Let us suppose that the proportion of any additional income absorbed as leakages is 0.6.
The more leakages dependent on of the income multiplier.
Leakages of saving, taxation, and imports will fall as income declines until once again total leakages equal total injections.
When leakages absorb 60 per cent of any additional income, therefore, the value of the multiplier is 1.67.
We also admit that the sum of all leakages as defined here over all the countries of the world need not be zero.
There is no evidence that the existing small leakages adversely affected the test results, but this aspect of the design should be improved in future work.
Since leakages are assumed to be related to income, and injections are assumed exogenous, then variations in income equate total income and expenditure flows in the circular flow model.
A similar effect takes place when the government changes the rate at which taxation is levied because such changes alter the proportion of additional income which is absorbed by leakages.
