Question

Explain in your own words why the flow of gross domestic product during a given interval must always be equivalent to the flow of gross domestic income within that same period.

Short answer

It clearly defines the relationship between the money cycle and gross domestic product and gross domestic product.

Step-by-step solution

Step 1- Introduction

The income and product cycle explains that during the interval, the value of the output is always equal to the income of the factor.

Step 2- Explanation

The following figure illustrates this process

Step 3- Conclusion

In any economy, businesses produce goods and services, and households buy and consume the goods and services they provide. Companies produce goods from household income (in the form of purchases), and similarly, households purchase goods from household income (in the form of labor).

This means that spending on products created by a company is nothing more than the income a household receives from the company.