what is leakage 
in economics leakage refers to capital or income that diverges from some kind of iterative system leakage is usually used in relation to a particular depiction of the flow of income within a system referred to as the circular flow of income and expenditure in the keynesian model of economics within this depiction leakages are the non consumption uses of income including saving taxes and imports understanding leakagethis particular keynesian model of the flow of income is usually depicted as a circle and the components include national income output consumption and factor payments non consumption uses of income savings taxes and imports are leaked out of the main flow this reduces the money available throughout the rest of the economy this theory of keynesian economics purports that when leakage causes a shortage of capital governments might have to take steps to stimulate their economies by injecting cash into their systems this injection of funds can be achieved by increasing the level of exports to foreign nations or by borrowing funds from investors or foreign governments imported goods are sometimes referred to as a source of leakage because they can have the effect of transferring income that was earned in one country to another country the funds used to purchase the imports leave the immediate area resulting in an outflow from the domestic area 