Why does expenditure equal income?
A) because firms are required by law to pay out all their revenue as income to someone
B) because ultimately firms are owned by households
C) because for every sale there is a buyer and a seller
D) because the demand and supply of goods and services must be equal

Question

Quizplus · Accepted Answer

Expenditure and income must be equal because for every sale there is a buyer and a seller. If a person spends money to buy a product, that expenditure becomes the income of the seller. Therefore, the total expenditure in an economy must equal the total income. Option A is incorrect because firms are not required by law to pay out all their revenue as income to someone; they retain some of the revenue for reinvestment in the business. Option B is incorrect because not all firms are owned by households. Option D is incorrect because the demand and supply of goods and services don't necessarily have to be equal in an economy.

Why Does Expenditure Equal Income