Question

1. What are the ‘five major types of income” ? 2. Please describe each type of income in some detail: a) what does it take, exactly, for a worker to earn a wage? b) how is interest income earned? c) how is ‘capital gain’ income earned? d) how is ‘inheritance’ income earned, exactly? e) how are social security benefits earned? f) how are private sector pensions and government employee pensions earned? g) how are unemployment insurance benefits earned?   3. Please rank each type of income on a scale from 1, contributes the most to our economy and our society, to 5, contributes the least, and defend your ranking system. 4. In your opinion, should one type of income be taxed at a higher rate than the others? Why? Should one type of income be taxed at a lower rate? If so, why?  

Answer 1

Answer 1) Income is some amount which we earn in exchange of providing some goods or by rendering some services. Income can also be earned by investing our surplus funds into certain tools available for investment.

The five major types of Income are as follows:-

• Salary
• Income from House Property
• Profit from Business or Profession
• Capital Gain
• Income from other Sources

Answer 2) Detailed explanation of the above type of incomes

• SALARY - In every organisation, the employer appoints or hires a certain numerber of employees for doing specific jobs. The remuneration which is paid to those employees in retun of the services rendered by them is known as 'Salary' .
• INCOME FROM HOUSE PROPERTY - Here property does not neccessarily restrict to house properties only but also includes Building, Office, Warehouse, Shop etc. It can be both a Residential as well as a Commercial Property The income earned from the above is known as Income From House Property.
• PROFIT FROM BUSINESS OR PROFESSION - This is the revenue that is earned in the normal course of the business or profession due to the activties performed by sellling goods or rendering certain services.
• CAPITAL GAINS - An Asset is something that we own. Capital assets can be anything such as Homes, Cars, Stocks, Bonds, etc. But in a business Capital Assets are those which are used in the regular activities or operations of the business. The price at which we buy the Assets is known as the Purchase Price. Capital Gain is the income that is earned by the sale of the Capital Assets. Capital gain is of two type: Long Term and Short term
• INCOME FROM OTHER SOURCES - Any income which does not come under the above four heads is know as Income From Other Sources. Example - Dividend Income, Income from winning lotteries , etc

Answer 2 ( a ) Wage basically is the measure of monetary benefit imparted to the worker or employee corresponding to the standard units of working time or a standard amount of work completed. Going by the context of Economics, to earn a wage, the worker or an employee has to create an amount of revenue for the company. This is also called Workers Marginal Product or MPL.

Answer 2 ( b ) In the modern scenario nobody is unaware of the benefits of Investment. The Income of all individuals are generally divided into three broad parts i.e. Savings, Investment and Consumption. Whenever we invest our money anywhere we earn a certain amount of income on it known as the Interest Income like in Bonds, Mutual Funds, etc. Infact Interest Income is the driver which motivates us or gives us the incentive to invest out surplus cash. Interest income can also be earned by lending money. Whenever we lend our money to somebody we charge from them a certain amount i rerun of letting them use our money for a specific period of time. This is also known as Interest income and it is generally charged on the basis of some fixed percentage on the amount lent.