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Leakage is an economic term that describes capital or income that escapes an economy or system in the context of a circular flow of income model In simpler terms, leakage occurs when money earned isn’t reinvested into the economy through consumption, investment, or government spending, potentially dampening aggregate demand and slowing economic growth. It results in a gap between supply and demand.

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In economics, a leakage is a diversion of funds from some iterative process Leakage, in economic contexts, refers to capital or income that leaves the circular flow of a system Leakage occurs when there is a withdrawal of money from the economy that results in a reduction of the national income

Sources of leakages include taxes, savings, and imports.

Leakage is a term used in economics to describe the outflow or loss of income from a system or economy It refers to the portion of income that is saved, taxed, or used to pay for imports, rather than being spent within the domestic economy. The nature conservancy declines in economics, leakage is a classic spillover, where an economic or policy driver in one market or location creates an unintended consequence in another market or location as a result of market interactions (e.g., shifts in supply and/or demand for inputs or outputs).