1. Why does GDP equal aggregate income and also equal aggregate expenditure?

Answer:
The definition of GDP, Gross Domestic Product, is the value of the aggregate production of goods and services in a country during a given period of time which usually one year. The GDP can be measured in two ways by the expenditure approach which is the total expenditure on goods and services or by the income approach, total income earned producing goods and services. Total expenditure is known as aggregate expenditure which equals consumption expenditure plus investment plus government expenditure plus net exports. The equation is shown below: GDP= C+I+G+X-M
On the other hand, total earned producing goods and services are known as aggregate income which equal to the total amount paid for the factors of production used such wages, interest, rent and profit. The firms pay out as incomes including retained profits, everything they receive from the sale of their output, so income equals to expenditure.
Y= C+I+G+X-M GDP equals to aggregate income and aggregate expenditure is because in the circular flows of expenditure and income shows that the household receive income from the firms when they provide labour to them which know as firms consumption. The households spend their income to goods and services which produce by the firms which known as household consumption. The households save their money in the financial markets which known as bank and the firms borrow money from the bank to purchase of new capital which known as investment (I). The household pay tax the government and the government use the taxes subsidies to the firms which known as government expenditure (G). The rest of the world sell goods and services to the firms – exports (X) – and the household buy goods and services from the firms which the goods and services are import from the rest of the world –