Why an economy’s income must equal its expenditure.
Explanation of Solution
The economy transacts the goods and services for getting the money in return. This means that the money acts as a medium between the buyers and sellers. When the buyers give money, it is the consumption expenditure of the consumers or the buyers. When the sellers receive money in return for the goods and services that they rendered to the consumers, it becomes their income. Thus, every transaction in the economy has a buyer and a seller, and every expenditure by the buyers turns out to be income of the seller. Therefore, it can be said that an economy’s income must equal its expenditures.
Concept introduction:
Expenditure: Total expenditure refers to the total amount of money spent by the firm, individual, or government on a product in a given period of time.
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