National accounting identities Let C stand for consumption spending, I for investment, G for government purchases, X for exports, IM for imports, DI for disposable income, and NT for net taxes. Consider the following identity and answer the questions that follow. Which of the following best characterizes the above identity?

A. National income must equal domestic product.

B. Domestic product must exceed national income.

C. National income must equal the total amount of leakages from the nation's flow of income and expenditures.

D. National income must equal the total amount of injections into the nation's flow of income and expenditures.

True or False: Disposable income must equal consumption plus saving.

A. National income must equal domestic product.

True.

Explanation:

National Income is the total value of goods and services produced in a country during a financial period. It is total income from a country's economic activities.

Domestic product is monetary value of all economic activities of a country during a period.

National Income is sum of Investments, Savings, Government expenditures and net exports. National Income equals the domestic products of a country. The equation is as follows:

C + I + G + (X - IM) = DI + NT.

The statement given is true. Disposable income equals the saving plus consumption. The excess of disposable income which is not consumed is saved.  Sum of saving and consumption must equal Disposable income in an economy.

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