Question

Explain why an economy’s output, in essence, is also its income.

Short answer

The output shows the consumer demand in an economy, and all products are produced to meet the demand. If the income is low, the demand will also be low and vice versa.

Step-by-step solution

Gross Domestic Product

GDP is the overall production of a nation during a specific time period. GDP accounts for the value of visible and invisible items produced in a country when the national income is calculated. GDP is one of the major factors used to analyze the economy’s performance over a period of time.

Output as an essence of income

The output in the economy is produced according to the demand. All goods and services produced in an economy will eventually get sold.The producers will produce the goods, and the consumers will consume them for their needs.

The money paid by the consumer to the producer will be the producer's income, and the consumer uses their income to purchase goods and services. The flow of output and flow of money in an economy will be the same. So the economy’s output is the essence of its income.