Because production generates income which, in turn, generates expenditure, it is true that:

Question

Quizplus · Accepted Answer

The statement implies that there is a circular flow of income and expenditure in the economy. In this context, both the income and production approaches measuring macroeconomic activity should yield the same results. Therefore, Option C is the correct choice. Option A is incorrect since taxes on income and expenditure can be used to stabilize the economy. Option B is incorrect since government budget deficits and trade deficits are not equal in magnitude. Option D is incorrect because corporate profits can be larger than the income paid to households for the rental of their capital if the corporation also generates income from other sources such as sales or investments.

Because Production Generates Income Which, in Turn, Generates Expenditure, It