why is aggregate supply equal to income ?
They are (i) the supply of consumer goods and services in a year, (ii) the supply of capital goods or investment goods as they help in producing further goods. Aggregate supply is the same thing as national product. The money value of national product of goods and services is distributed among the various FACTORS OF PRODUCTION as wage, rent interest and profits as rewards for the contribution of factors to the national product. The aggregate of wages, rent, interest and profit is called national income.
Factors determining aggregate supply:-
The supply of goods depends on the STOCK of capital, the amount of labour used and the state of technology. In the shot run STOCK of capital is constant and the output can be increased by increasing the amount of labour. Thus Y = (K.T.L) where Y is national output, T is the constant amount of technology and K is the constant amount of STOCK of capita! Given K and T, production of output is the increasing function of labour.
Production of output is done by given stock of capital and state of technology with EMPLOYMENT of labour. However the amount of labour employed out of this given size of population can vary depending upon the demand for labour.