Which of the following is NOT included in-measuring the National income through the income approach?

Analyze the question

The question asks which item is NOT counted when measuring national income by the income approach.

Explain the concept

The income approach adds up all incomes earned by factors of production for their contribution to producing goods and services in a year:

• Wages and salaries (labour)
• Rent (land)
• Interest (capital)
• Profit (entrepreneurship)

Only factor incomes (earnings for productive services) are counted. Transfer payments are excluded. These are payments made without any good or service being produced in return, such as gifts, pensions, scholarships, and allowances to dependants. Counting them would be double counting, because the money was already counted as income when the giver earned it.

Step-by-step solution

• A. Profit earned by NITEL plc: Profit is a reward to the entrepreneur or owners, so it is included.
• B. Profit earned by Nigerian Bottling Company plc: This is also profit from production, so it is included.
• C. Income earned by a bricklayer: This is wages for labour, so it is included.
• D. Allowance given to an aged mother by a civil servant: This is a gift or transfer payment. The mother provides no productive service for it, and the civil servant's salary has already been counted. So it is not included.

Answer: D

Exam tip

Ask yourself: "Was this money earned in exchange for producing something?" If the answer is no, as with gifts, pocket money, pensions, scholarships, and remittances from relatives, it is a transfer payment and is excluded from national income.