of their additional income on consumption. But in practice, people tend to spend their additional income on other items. Such expenses are known as leakages. Payment towards past debts.
If a portion of the additional income is used for repayment of old loan, the MPC is reduced and as a result the value of multiplier is cut. Purchase of existing wealth If income is used in purchase of existing wealth such as land, building and shares money is circulated among people and never enters into the consumption stream. As a result the value of multiplier is affected. Import of goods and services Income spent on imports of goods or services flows out of the country and has little chance to return to income stream in the country.
Thus imports reduce the value of multiplier. - - Consumption and Investment Functions