In a simplified economy, it is assumed that there are no savings, taxes, exports and imports. During the production process, four factors of production (land, labour, capital and enterprise) receive income in the form of rent, wages, interest and profit for their factor services. The sum total of these incomes is the factor income received during a year. The entire factor income is spent by the factors on purchase of final goods and services. The sum of these purchases is the aggregate final expenditure during the year. So, it is rightly said that aggregate final expenditure in a year is equal to aggregate factor payments.
