The diagram below illustrates the circular flow of income in an economy.
According to this model, national income can be measured using three equivalent approaches: the income, expenditure, and output methods. Which of the following statements correctly describes one of these methods of measuring national economic activity?
The expenditure method measures the total monetary value of all transactions in the economy, including savings, taxes, and the purchase of intermediate goods.
The income method measures the total value of all factor incomes—comprising wages, rent, interest, and profit—earned by households, excluding transfer payments.
The output method measures the total value of all production in the economy, calculated by summing the gross sales revenues of all businesses at every stage of production.
The expenditure method measures the total spending on final goods and services, which is calculated as consumer spending plus investment and government spending, plus imports minus exports.
