Which of the following is NOT correct regarding circular flow of income?

Correct — D. Saving is a leakage, not an injection. Income that households save leaves the circular flow, because it is received but not spent on domestic output.

Government expenditure is an injection — spending that enters the loop from outside the household-firm circuit. Option (d) places the two on the same side of the model, so it is the statement that is NOT correct.

The remaining three describe the model accurately, which is why the odd one out is option (d).

Why the others are wrong

• (a)
  In a circular flow, leakages are equal to injections. — Leakages equal injections is the equilibrium condition of the circular flow: saving plus taxes plus imports match investment plus government spending plus exports. A correct statement, so not what the stem wants.
• (b)
  The income of one sector becomes the expenditure of the other. — One sector's income is another sector's expenditure is the definition of the circular flow itself — firms pay households, households spend at firms. Correct, so not the answer.
• (c)
  The real flow and monetary flow move in a circular manner in an opposite direction. — Real flow and money flow run in opposite directions — goods and factor services one way, payments the other. That is an accurate description of the model.

The circular flow of income models an economy as money and goods moving in a loop between households and firms.

Injections add spending to the loop: investment, government expenditure and exports. Leakages, also called withdrawals, take income out of it: saving, taxes and imports.

The loop is in equilibrium when the two sides match — S + T + M = I + G + X. That single identity settles most questions of this type, because the wrong option normally moves one term to the wrong side, which is exactly what happens here with saving.

Key facts

• Leakages from the circular flow are saving, taxation and imports.
• Injections into the circular flow are investment, government expenditure and exports.
• Equilibrium in the circular flow requires S + T + M = I + G + X.
• The real flow of goods and factor services and the money flow of payments move in opposite directions.

Common traps

• Treating saving as an injection because it later funds investment
• Expecting leakages and injections to match item by item rather than in total

No directly related past PYQ was found.