For the Income Method and Expenditure Method to give the same answer, is it a necessary that Savings = Investments in Economy (Economy is in equilibrium)
The fact that Income and Expedniture Method give the same answer imply that the entire income is spent or the savings are rerouted through institutions like Banks and become investments for the producers
Dear student,
It is not necessary that for the economy to be in equilibrium for the three methods of measuring national income to give the same answer.
The three alternative methods of calculating national income are based on the concept of circular flow national income. According to the circular flow model the expenditure on the purchase of goods and services by the households and the other sectors is the
factor income for the household sector (in terms of rent, interest,profit and wages).
It is not necessary that for the economy to be in equilibrium for the three methods of measuring national income to give the same answer.
The three alternative methods of calculating national income are based on the concept of circular flow national income. According to the circular flow model the expenditure on the purchase of goods and services by the households and the other sectors is the
factor income for the household sector (in terms of rent, interest,profit and wages).