question_answer

Giving reason explain how the following should be treated in estimation of national income:

(i) Payment of interest by a firm to a bank

(ii) Payment of interest by a bank to an individual

(iii) Payment of interest by an individual to a bank

Answer:

(i) Payment of interest by a firm to bank will be included in the national income. This is because the firm would have taken loan for productive purposes.

(ii) Payment of interest by a bank to an individual will be included in the national income. This is because the bank would have used the savings of the individuals (on which the loan is paid) for productive purposes.

(iii) Payment of interest by an individual to a bank will not be included in the national income. This is because the individual is expected to have taken a loan for consumption purposes rather than for productive purposes.