Question

The National Income of a country is

• A. the annual revenue of the Government
• B. sum total of factor incomes
• C. surplus of PSU'S
• D. export minus Import

Hint:

Think about the income approach to measuring national output: wages plus rent plus interest plus profit.

Answer 1

The Correct Option is B

This question checks the basic definition of national income used in macroeconomics.

1. Annual revenue of the Government: This is just the tax and non-tax receipts collected by the state, a fraction of the whole economy's activity, not national income.
2. Sum total of factor incomes: National income by definition equals the sum of wages, rent, interest and profit earned by a country's normal residents while producing goods and services in a year.
3. Surplus of PSU's: The profit earned by public sector undertakings is only a small slice of overall economic activity and cannot represent the whole national income.
4. Export minus Import: This measures the trade balance, one input used in the expenditure method of estimating GDP, not the definition of national income.

Since national income is derived by adding up all the factor incomes earned across the economy, the correct choice is "sum total of factor incomes".