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Suppose that an economy consists of only two individuals. Leland has $1550 available to spend on...

Question:

Suppose that an economy consists of only two individuals. Leland has $1550 available to spend on goods. He decides to purchase $610 worth of produce from Michele in the current year. No other economic activity takes place during the current year. Using this information, answer the questions.

(a) For the current year, what is the economy's income?

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

Economy's Income and Expenditure:

Income in an economy reflects the value of cash received as a result of an investment and sale of goods and services. Expenditure reflects the value of money given up in exchange for goods and services in an economy.

Answer and Explanation:

a.) For the current year, the economy's income is $610.

This is because this is the only transaction that takes place in the current year, where money is received by Michele for sale of produce worth $610.

b.) For the current year, the economy's expenditure is $610.

This is because only one transaction occurred in the current year, where cash worth $610 was given up by Leland in exchange for produce from Michele. It is important to note that the economy's income is converted to its expenditure because money is given up on one side of a transaction and received on the other end of the transaction.


Learn more about this topic:

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Gross Domestic Product: Using the Income and Expenditure Approaches

from Economics 102: Macroeconomics

Chapter 4 / Lesson 2
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