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CA Foundation · Business Economics · Determination of National Income

In the income method of measuring national income, which of the following items is included in factor incomes?

Company profits, including undistributed profits, are included because they are the return to entrepreneurship, a factor of production, earned from current production. Pensions and gifts are transfer payments, and second-hand sales do not represent current output, so they are excluded.

  1. AOld-age pension paid by the government
  2. BProfits of a company, including undistributed profitsCorrect
  3. CProceeds from sale of second-hand car
  4. DGift received by a student from relatives

Explanation

The income method sums incomes earned by factors of production: compensation of employees, rent, interest, profit and mixed income. Company profits, whether distributed or retained, are factor income. Pensions and gifts are transfer payments, and sale of a second-hand car is not current production.

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