Match each economic transaction or receipt under the income method of measuring national income with its correct factor income classification or accounting treatment.
- Monthly state pensions and unemployment relief grants paid to citizensTransfer payment (Excluded from National Income)
- Dividends distributed to shareholders of a private manufacturing firmCorporate profit component (Reward for entrepreneurship)
- Net income earned by a sole proprietor operating a local retail storeMixed income of the self-employed (Combined factor earnings)
- Royalties received by a landowner from a petroleum extraction companyRental income (Reward for land and natural resources)
Answer
State pensions and unemployment relief grants match with Transfer payment (Excluded from National Income); Dividends distributed to shareholders match with Corporate profit component; Net income earned by a sole proprietor matches with Mixed income of the self-employed; Royalties received by a landowner match with Rental income.
The income method measures national income by summing all factor rewards earned by residents for participating in current economic production: compensation of employees (wages/salaries), rental income (including land royalties), net interest, corporate profits (dividends, retained earnings, tax), and mixed income of the self-employed. Receipts that do not correspond to productive output, such as welfare grants and pensions, are transfer payments and are strictly excluded.
Step-by-Step Solution
Key Concept
Classification of Factor Incomes and Non-Factor Receipts in National Income Accounting
Estimated Time:1m 30s