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Consider the following statements.
1. When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms
2. When the aggregate revenue received by the firms is paid out to the factors of production it takes the form of aggregate income
Which of these statements are correct?
- a)1 Only
- b)2 Only
- c)Both of them
- d)None of them
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements.1. When the income is being spent o...
- When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms.
- Since the value of expenditure must be equal to the value of goods and services, we can equivalently measure the aggregate income by “calculating the aggregate value of goods and services produced by the firms”.
- When the aggregate revenue received by the firms is paid out to the factors of production it takes the form of aggregate income.
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Consider the following statements.1. When the income is being spent o...
Explanation:
Statement 1: When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms.
Explanation: This statement is correct. When individuals or households spend their income on goods and services produced by firms, it contributes to aggregate expenditure. Aggregate expenditure is the total amount of spending on goods and services in an economy. It includes consumption expenditure, investment expenditure, government expenditure, and net exports.
When individuals or households purchase goods and services, they are essentially contributing to the revenue of the firms that produce those goods and services. This spending is an essential component of aggregate expenditure and contributes to the overall demand in the economy.
Statement 2: When the aggregate revenue received by the firms is paid out to the factors of production, it takes the form of aggregate income.
Explanation: This statement is also correct. When firms receive revenue from their sales, they need to pay out various costs, such as wages to workers, rent for the use of land, interest on borrowed capital, and profits to the owners. These costs are the payments made to the factors of production - labor, land, capital, and entrepreneurship.
The total amount of payments made to the factors of production is known as aggregate income. It represents the total income generated in an economy during a specific period. This income is then available to individuals and households, who can then use it for consumption or savings.
Conclusion:
Both statements are correct. When income is spent on goods and services produced by firms, it becomes aggregate expenditure. When the revenue received by firms is paid out to the factors of production, it becomes aggregate income. These two concepts are interrelated and represent different aspects of the flow of income and expenditure in an economy.
Statement 1: When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms.
Explanation: This statement is correct. When individuals or households spend their income on goods and services produced by firms, it contributes to aggregate expenditure. Aggregate expenditure is the total amount of spending on goods and services in an economy. It includes consumption expenditure, investment expenditure, government expenditure, and net exports.
When individuals or households purchase goods and services, they are essentially contributing to the revenue of the firms that produce those goods and services. This spending is an essential component of aggregate expenditure and contributes to the overall demand in the economy.
Statement 2: When the aggregate revenue received by the firms is paid out to the factors of production, it takes the form of aggregate income.
Explanation: This statement is also correct. When firms receive revenue from their sales, they need to pay out various costs, such as wages to workers, rent for the use of land, interest on borrowed capital, and profits to the owners. These costs are the payments made to the factors of production - labor, land, capital, and entrepreneurship.
The total amount of payments made to the factors of production is known as aggregate income. It represents the total income generated in an economy during a specific period. This income is then available to individuals and households, who can then use it for consumption or savings.
Conclusion:
Both statements are correct. When income is spent on goods and services produced by firms, it becomes aggregate expenditure. When the revenue received by firms is paid out to the factors of production, it becomes aggregate income. These two concepts are interrelated and represent different aspects of the flow of income and expenditure in an economy.
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Consider the following statements.1. When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms2. When the aggregate revenue received by the firms is paid out to the factors of production it takes the form of aggregate incomeWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both of themd) None of themCorrect answer is option 'C'. Can you explain this answer?
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