Question

Giving reason, explain how should the following be treated in estimating national income:

(i) Interest paid by banks on deposits by individuals.

(ii) National Debt interest.

Answer 1

Reasons: 

(i) Interest paid by Banks-It will be included as it is a factor income. 

(ii) National Debt Interest-It will not be included as it is assumed that Government borrows for consumption Purpose. Therefore, it is treated as transfer income.