The diagram below represents the Circular Flow of Income in an open economy without government - Leaving Cert Economics - Question 8 - 2018

Imports represent an outflow of money from the domestic economy to foreign markets. When households and firms purchase imported goods and services, money that would ordinarily remain within the economy is paid to foreign producers. This results in a decrease in the overall economic activity within the domestic economy because the money is no longer being circulated among households, firms, and financial institutions. The reduction in consumption and investment can lead to a decrease in income and employment levels locally, illustrating how imports function as a leakage from the circular flow of income.