Why national output = national income = national expenditure?
In macroeconomics view, firms and households represent economic actors that interact within a market (2001). Their interaction is guided by the law of demand and supply wherein the role of being the buyer and seller fluctuates depending on the nature of the transaction between them. According to circular flow of income (see diagram 1), households provide factors of production to the firms like land, labor and capital. From this, firms would produce goods and services available for domestic and households needs and symbolize the national output. Further, as compensation to households, they will be entitled for wages, rent and dividends which form the national income. And through this amount, households will be able to consume goods and services which represents the national expenditure. Focusing on the processes of an internal or closed economy, the level of national output will not be disproportionate from the level of national income because firms will only compensate households based
