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The equilibrium in the leakage-injection graph is where saving is equal to investment:
I=S. Should firms produce more an unintended saving would be present in the form of inventory accumulation. Should firms produce less, dissaving would occur in the form of inventory depletion.
Figure 8.3 Saving and Investment
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Many modern automobiles are equipped with vapor recirculation devices: what is lost to gasoline evaporation in the tank and carburetor is returned to the engine with that device so that the motor does not lose power. A similarity can be established with the circular fund flow model. |
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