What economic condition occurs when injections do not equal leakages, leading to instability?

The correct answer, disequilibrium, refers to an economic condition where injections into the circular flow of income—such as investments, government spending, and exports—do not equal leakages, which include savings, taxes, and imports. This imbalance creates instability within the economy, leading to fluctuations in economic activity.

When injections exceed leakages, it can result in increased production, employment, and income levels as firms respond to higher demand. Conversely, if leakages surpass injections, the economy may contract, leading to reduced production and job losses. Disequilibrium implies that the economy is not in a steady state and is susceptible to cycles of boom and bust, reflecting the dynamic nature of economic activity.

Equilibrium, on the other hand, signifies a state where injections equal leakages, resulting in a stable level of economic activity. The circular flow of income is a model that illustrates the flow of goods and services and money in an economy, but it does not directly indicate stability or instability without considering the balance of injections and leakages. Recovery represents a phase within the economic cycle when an economy is coming out of a recession, indicating improvement but not necessarily addressing the concept of stability in injections and leakages.