Log out Go to App
Go to App

Learning Materials

Features

Discover

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

How do “free” products make the calculation of GDP more difficult? What are hedonic adjustments, and why are they necessary? Will inflation tend to be overstated or understated if quality improvements are not accounted for? 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.”

Which of the following transactions are counted in GDP?Select one or more answers from the choices shown.

a. Kerry buys a new sweater to wear this winter.

b. Patricia receives a Social Security check.

c. Roberto gives his daughter \(50 for her birthday.

d. Nayana sells \)1,000 of General Electric stock.

e. Jasmine buys a new car.

f. Molly buys a used car

Why is gross output a better measure of overall economic activity than GDP is? How could you construct a new statistic that focuses only on nonfinal economic activity? Given what you know about the behavior of GO and GDP during the Great Recession, would you expect your new statistic to show more or less volatility than GO and GDP? Why? How would you rank the three in terms of volatility?

A small economy starts the year with \(1 million in capital. During the course of the year, gross investment is \)150,000 and depreciation is \(50,000. What is the economy’s capital stock at the end of the year?

a. \)1,150,000

b. \(1,100,000

c. \)1,000,000

d. \(850,000

e. \)800,000
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free