Question : The personal income of households can be calculated in which of the following ways?
Option 1: National income + Undistributed profits – Net interest payments – Corporate tax + Transfer payments from the government and firms.
Option 2: National income – Undistributed profits – Net interest payments – Corporate tax + Transfer payments from the government and firms.
Option 3: National income – Undistributed profits + Net interest payments – Corporate tax –Transfer payments from the government and firms.
Option 4: National income – Undistributed profits – Net interest payments – Corporate tax –Transfer payments from the government and firms.
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Correct Answer: National income – Undistributed profits – Net interest payments – Corporate tax + Transfer payments from the government and firms.
Solution : The correct answer is National income - Undistributed profits - Net interest payments - Corporate tax + Transfer payments from the government and firms .
Personal income is a measure of household income before any deductions. It includes income from many sources, including earnings, salaries, rental income, interest, dividends, and government and corporate transfer payments.
Undistributed profits (profits not distributed as dividends to shareholders), net interest payments (interest paid on loans less interest received), and corporate tax (tax paid by corporations) are deducted from national income.
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