Canadian Securities Course (CSC) Level 1 Practice Exam

Describe the income approach.

1. Calculates an industry's output and subtracts the value of all goods and services used to produce the outputs.

2. Total spending on goods and services should equal the total income generated by producing those goods and services.

3. Adds up all of the income generated by economic activity.

4. Adds up everything consumers, businesses, and governments spend during a time frame.

The correct answer is: Total spending on goods and services should equal the total income generated by producing those goods and services.

The income approach in economics focuses on the concept that the total spending on goods and services within an economy should be equal to the total income generated by producing those goods and services. This approach emphasizes that the income earned from producing goods and services ultimately determines the level of spending in an economy. By ensuring that total spending equals the total income, the income approach provides insight into how various economic sectors interact and contribute to overall economic activity. Option A is incorrect because it describes the output approach, which calculates an industry's output and subtracts the value of all goods and services used to produce those outputs. This approach does not directly relate to the income generated by producing goods and services. Option C is incorrect as it oversimplifies the income approach by stating that it simply adds up all of the income generated by economic activity. While this is a component of the income approach, the crucial point is the equality between total spending and total income. Option D is incorrect because it describes the expenditure approach, which adds up everything consumers, businesses, and governments spend during a specific time frame. Although related to economic analysis, this approach does not focus specifically on how income generated from producing goods and services influences overall spending in the economy.