1. (Leakages and Injections) What are the leakages from and injections into the circular flow? How are leakages and injections related to the circular flow?
2. (Investment) In national income accounting, one compo- nent of investment is net changes in inventories. Last year's inventories are subtracted from this year's inventories to obtain a net change. Explain why net inventory increases are counted as part of GDP. Also, discuss why it is not suf- ficient to measure the level of inventories only for the current year. (Remember the difference between stocks and flows.)