Final answer:
An economy's output is also its income because the production of goods and services equates to income for the producers, including workers and firms. GDP encapsulates both the total value produced and the combined incomes generated from production, which is then referred to as the national income.
Step-by-step explanation:
An economy's output is essentially also its income because the production of goods and services generates earnings for individuals and firms involved in the process. When we think about the economic term Gross Domestic Product (GDP), which is commonly used to measure an economy's output, it can be understood as the total value of everything produced by all the people and companies within a country. This measure encapsulates both the value of all finished goods and services produced over a specific period and the sum of incomes resulting from that production. Thus, GDP can serve as a proxy for national income.
Recall that in a market economy, income is derived from ownership of resources or assets. Most income comes in the form of wages, salaries, or other labor income. However, income can also come from owning physical or financial assets, like real estate, stocks, and bonds. Payments for using these assets—rents, dividends, and interest—also contribute to an individual's income. So, the income received by providing resources for production is what we define as the national income (Y), which is essentially the sum of all income generated in the economy, matching the output value.