Question : The income method of calculating national income includes the sum of ______.
Option 1: Wages, rent, interest, and profit
Option 2: Consumption, investment, government expenditure, and net exports
Option 3: Output of all sectors in the economy
Option 4: Depreciation and indirect taxes
Correct Answer: Wages, rent, interest, and profit
Solution : The correct answer is (a) Wages, rent, interest, and profit.
The income method of calculating national income involves summing up the various components of income earned by factors of production in an economy. These components include wages earned by labor, rent earned by landowners, interest earned by capital providers, and profit earned by entrepreneurs.
Specifically, the income method calculates national income by adding up the following:
Wages: This includes the compensation received by individuals for their labor or services provided in the production process.
Rent: This refers to the income earned by owners of land or other natural resources for their use in the production of goods and services.
Interest: This represents the income earned by individuals or institutions that provide financial capital, such as loans or investments, to others.
Profit: This includes the income earned by entrepreneurs and business owners as a return on their investment and as compensation for their managerial skills and risk-taking.
The income method focuses on measuring the income generated by the production process rather than the final value of goods and services produced. It provides an alternative approach to calculating national income compared to the expenditure method, which sums up the various components of spending in the economy.
