This is a picture of the circular model of the economy. There are two markets,
the factor market and the goods market. Consumers are the buyers in the
goods market, and sellers in the factor market. Firms are buyers in the
factor market and sellers in the goods market. Notice how the physical
items - inputs and consumer goods - flow one way around the economy while
money - incomes and revenues - flow the other way.
The graphic here is an incomplete picture of the economy because it ignores three additional and important components of the economy: the financial system, the government sector, and the foreign sector. Each of these parts of the economy both drain money out of the flow (leakages) or add money to the flow (injections). In the financial system savings is a leakage. Households save instead of spending money on goods, and thus fewer dollars flow as revenue to domestic producers. Similarly, in the foreign sector, imports are a leakage, because the spending flows to foreign producers rather than domestic producers. But the financial system injects investment dollars, thus increasing the demand for domestically produced goods, and exports bring spending by foreign purchasers into the circular flow of the United States economy. In the government sector, taxes remove dollars from the discretion of household, and thus are a leakage - taxes cut consumption, while government spending increases the demand for domestic production, and so government purchases of goods and services are injections: In summary -
injections are investment, exports and government purchases
leakages are savings, imports and taxes.
Finally, a note about government purchases, often termed government
spending in class and economics textbooks. This means government spending
on goods and services, not all government spending. Thus, we are
including government spending to build roads and buy paper and pens, but
exclude transfer payments to households, things like AFDC and unemployment
compensation. Taxes are measured net of these transfer payments, so they
are not ignored.