Assuming that there is no capital depreciation and no business saving, what is the relationship between spending and income in an economy?
A) Spending is greater than income.
B) Spending is less than income.
C) Spending is equal to income.
D) Spending is equal to income plus investment.
E) Spending is unrelated to income.

Question

Quizplus · Accepted Answer

In an economy, spending and income are interdependent. When people spend money, they create a demand for goods and services, which in turn generates income for businesses and individuals. Since every transaction involves both a buyer and a seller, every dollar spent becomes an income to someone else. Thus, in a closed economy, where all income is spent, spending must be equal to income.

Assuming That There Is No Capital Depreciation and No Business