Exogenous Injections in Circular Flow Model

Steps:

• Recall circular flow: households and firms exchange income via spending; injections (X, I, G) add to flow, withdrawals (S, T, M) subtract.
• Identify causes: exogenous changes in injections/withdrawals initiate flow changes; endogenous responses follow.
• Analyze options: exports (X) are external injection, directly causing flow increase via foreign demand.
• Contrast: A, B, C are internal responses to prior flow changes, not initiators.

Why D is correct:

• Increase in exports is an exogenous injection (X ↑), directly causing circular flow expansion per Y = C + I + G + (X - M) formula.

Why the others are wrong:

• A: Decrease in tax revenue (T ↓) results from lower income, a consequence of flow contraction.
• B: Increase in consumption (C ↑) responds endogenously to higher disposable income from flow expansion.
• C: Increase in saving (S ↑) is an endogenous withdrawal reacting to greater income, not causing flow change.

Final answer: D