Match each economic receipt under the income method of measuring national income with its appropriate factor income classification or accounting treatment.
- Wages and salaries paid to factory employeesCompensation of employees
- Rental income earned by property ownersOperating surplus (Rent)
- Interest received on productive capital investmentsOperating surplus (Net interest)
- Old-age pensions paid by the governmentTransfer payment (Excluded from national income)
Answer
Wages and salaries paid to factory employees matches Compensation of employees; Rental income earned by property owners matches Operating surplus (Rent); Interest received on productive capital investments matches Operating surplus (Net interest); Old-age pensions paid by the government matches Transfer payment (Excluded from national income).
Under the income method, national income is measured by adding up all factor incomes (compensation of employees, rent, interest, profit, and self-employment income) earned by factors of production, while excluding transfer payments like pensions which are unearned receipts.
Step-by-Step Solution
Key Concept
Factor Income Classifications and Transfer Payment Exclusions in the Income Approach