Question

Suppose that an economy consists of only two individuals. Jeremy has $1830 available to spend on goods. He decides to purchase $930 worth of produce from Michele in the current quarter. No other economic activity takes place during the current quarter.
A) For the current year, what is the economy's income?

B) For the current year, what is the economy's expenditure?

C) In an economy, how are income and expenditure related?

Answer 1

Answer:

A) $930

B) $930

C) See explanation

Explanation:

A) Since Jeremy spends by purchasing products from Michele, Michele earns an income. As there are no further activity, the economy's income is $930.

B) Since Jeremy spends by purchasing products from Michele, Jeremy pays money. As there are no further activity, the economy's expense is $930.

C) There is a relationship between income and expenses in an economy. That relationship is called the consumption factor. If people earn money, they tend to spend that money. In an economy, someone's income may include another person's expenditure. An example can show the relationship in a better way -

If Mary earns money by providing services, it will be her income and also the economy's income. As another person pays fees for the services, it will be the customer's expense and also the economy's expenditure.