In the circular flow, how are the "value of production", "income", and "expenditures" related?
A) They have no relationship to each other.
B) Expenditures on GDP equal the value of production which equals income.
C) Once tax payments are subtracted at each stage, they are equal.
D) Once net exports of goods and services are subtracted from GDP, all three are equal.
E) Value of production always equals income but expenditures are smaller because households save some of their income and do not spend it.

Question

Quizplus · Accepted Answer

In the circular flow model of the economy, the value of production (GDP) is equal to the total income generated by the production (wages, rent, interest, profits), which in turn is equal to the total expenditures on the final goods and services produced. This relationship is fundamental to national income accounting.

In the Circular Flow, How Are the "Value of Production