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

Question

Quizplus · Accepted Answer

GDP is defined as the total value of goods and services produced in an economy in a given time period. Aggregate income, also known as national income, is the sum of all incomes earned by factors of production, such as labor and capital, in the same time period. In the absence of capital depreciation and business saving, all income earned by factors of production is paid out as factor payments, such as wages, salaries, rent, and profits. Therefore, aggregate income is equal to the total value of goods and services produced in the economy, which is equivalent to GDP. Thus, the relationship between GDP and aggregate income is that they are equal. Choice C is the correct answer.

Assuming That There Is No Capital Depreciation and No Business