Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter National Income Accounting. This page offers a step-by-step solution to the specific question from Exercise 1, Question 2:
Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
. With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
In a sectors economy, consisting of households and firms, the only way in which the households can dispose their income is on the goods and services produced by the firms. The factors of production use their remuneration to purchase goods and services. Thus, the income will come back to the producers in the form of sales revenue. So, there is no difference between the amount that firms distribute in the form of factor payments and consumption expenditure incurred by the households. The same process continues year after year.
However, if there has been any leakage in the form of savings, imports or taxes, then there arises a difference between the aggregate consumption expenditure and aggregate factor payments. In the case of some leakage, the households will spend less than their factors income. Consequently, the firms will receive lesser amounts in the form of revenue, which will reduce the production level and employment level. This process will continue in every successive round and production and employment levels will continue to drop. Thus, the equality between the aggregate consumption expenditure and the aggregate factor payment is very necessary for the smooth functioning of the economy.
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Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 2: Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? ....
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