What should be subtracted from GDP to calculate national income? Select one: A. indirect taxes B....

What should be subtracted from GDP to calculate national income?

Select one:

A. indirect taxes

B. net factor payments to the rest of the world

C. personal income taxes

D. depreciation

Expert Solution

GDP is the value of goods and services produced in the country over a period of time. It is mostly reported at market prices, It is a territorial concept and hence measures all value of products produced within the country irrespective of fact whether it has been produced by the citizens or foreigners.

National Income is the income earned by the citizens of a country over a period of time. It is based on citizenship concept and includes all income earned by a nation’s citizens working anywhere in the world.

Indirect taxes are imposed on the goods and services by government and is included in the calculation of GDP since it is calculated at market prices but since it does not form part of national income of the citizens so it must be deducted from GDP for calculating National Income.

Net factor payments to the rest of the world is the difference between factor payments to the rest of the world and factor payments from the rest of the world accruing to the country and hence it must be deducted to from GDP to calculate National Income.

Personal income taxes are the direct taxes imposed on the income of households by government and must be deducted to find personal disposable income. Personal Disposable Income is the part of the National Income which belongs to the households.

Depreciation is the part of the value of the capital which is lost due to wear and tear after use. It is included in GDP but must be excluded from National Income since it is not part of a any one’s income in the country.

Hence all A, B, C, D must be subtracted from GDP to calculate National Income.

Rahul Sunny answered 2 years ago

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