For an economy as a whole,income must equal expenditure because

Question

Quizplus · Accepted Answer

Income and expenditure are interconnected in an economy as every dollar spent by a buyer becomes income for a seller. Hence, for the economy as a whole, total income must always equal total expenditure. This is known as the basic principle of national income accounting. Choice A is incorrect as the number of firms and households do not necessarily have to be equal. Choice B is incorrect as individuals can also borrow or borrow on credit to spend. Choice D is incorrect as saving and spending are two different components of income and expenditure.

For an Economy as a Whole,income Must Equal Expenditure Because