In the short run,
A) spending determines income,but not the other way around
B) income determines spending,but not the other way around
C) spending determines the interest rate,but not the other way around
D) spending determines income,and income determines spending
E) spending determines the productivity,and productivity determines spending.

Question

Quizplus · Accepted Answer

In the short run, spending determines income, and income also determines spending. This is because when households and firms spend money, it generates demand for goods and services, which in turn creates revenue and thus income for firms. This higher income can then be spent on further goods and services. This circular flow of spending and income continues until there is a change in one of the factors such as interest rates or government policies.

In the Short Run