Which of the following best describes a potential replacement for the leakage of saving in the context of consumer surplus and willingness to pay?

• A. Investment spending
• B. Consumer surplus
• C. Government taxation
• D. Import payments

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'leakage' in the circular flow of income, which refers to income that is not immediately spent on domestic goods and services, such as savings, taxes, and imports.
2. Recognize that when consumers save money instead of spending it, this saving represents a leakage from the spending stream that drives economic activity.
3. Identify that to maintain or increase economic activity, leakages like saving must be offset by injections, which are additions to spending in the economy.
4. Recall that investment spending is the primary injection that replaces the leakage caused by saving, as saved funds are often used by firms for investment in capital goods.
5. Conclude that among the options given, 'Investment spending' best describes the replacement for the leakage of saving, because it channels saved funds back into the economy, supporting consumer surplus and willingness to pay.