The Injections-Leakages Balance

A balance between injections and leakages generates the same equilibrium as a balance between aggregate expenditures and aggregate production. A little manipulation of the Y = AE equilibrium condition illustrates why.

Aggregate expenditures (AE) are the sum of consumption (C), investment (I), government purchases (G), and net exports (X - M). AE = C + I + G + (X - M)

The income generated by aggregate production (Y) is used by the household sector for consumption (C), saving (S), and taxes (T). Y=C+S+T

Substituting each of these equations into the Y = AE equilibrium condition gives us: C + S + T = C + I + G + (X - M)

Because consumption (C) is on both sides, it cancels out. S + T = I + G + (X - M)

For reasons that will be apparent later, let's move imports (M) to the left-hand side. S+T+M=I+G+X

This last equation indicates that equilibrium can be achieved by equating injections I + G + X with leakages S + T + M. Most importantly, when aggregate expenditures equal aggregate production (Y = AE), then
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APC = C/ Y-T APC = 420/ 850 - 290 APC = 420/560 APC = 0.75 ANS.