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Chapter 7: Q5. (page 151)

Explain why an economy’s output, in essence, is also its income.

Short Answer

Expert verified

The output shows the consumer demand in an economy, and all products are produced to meet the demand. If the income is low, the demand will also be low and vice versa.

Step by step solution

01

Gross Domestic Product

GDP is the overall production of a nation during a specific time period. GDP accounts for the value of visible and invisible items produced in a country when the national income is calculated. GDP is one of the major factors used to analyze the economy’s performance over a period of time.

02

Output as an essence of income

The output in the economy is produced according to the demand. All goods and services produced in an economy will eventually get sold.The producers will produce the goods, and the consumers will consume them for their needs.

The money paid by the consumer to the producer will be the producer's income, and the consumer uses their income to purchase goods and services. The flow of output and flow of money in an economy will be the same. So the economy’s output is the essence of its income.

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Most popular questions from this chapter

Assume that the total value of the following items is \(600 billion in a specific year for Upper Mongoose: net exports = \)50 billion; value of new goods and services produced in the underground economy = \(75 billion; personal consumption expenditures = \)300 billion; value of the services of stay-at-home parents = \(25 billion; gross domestic investment = \)100 billion; government purchases = $50 billion. What is Upper Mongoose’s GDP for the year? What is the size of the underground economy as a percentage of GDP? By what percentage would GDP increase if the value of the services of stay-at-home spouses were included in GDP?

Tina walks into Ted’s sporting goods store and buys a punching bag for \(100. That \)100 payment counts as ______________ for Tina and _____________ for Ted.

a. income; expenditure

b. value added; multiple counting

c. expenditure; income

d. rents; profits

Why are changes in inventories included as part of investment spending? Suppose inventories decline by \(1 billion during 2022. How would this \)1 billion decrease affect the size of gross private domestic investment and gross domestic product in 2022? Explain.

Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Explain: “Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero.”

What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.
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