What should be subtracted from GDP to calculate national income?
A) depreciation
B) indirect taxes
C) personal income taxes
D) net factor payments to the rest of the world

Question

Quizplus · Accepted Answer

GDP includes all final goods and services produced within a country's borders, regardless of whether they were produced by domestic or foreign factors of production. However, to calculate national income, we need to consider only income generated by domestic factors of production. Therefore, any income paid out to foreign factors of production (net factor payments to the rest of the world) should be subtracted from GDP. Additionally, since depreciation represents the amount of capital stock used up in production during a given period, it should also be subtracted to arrive at national income. Indirect taxes and personal income taxes are not subtracted from GDP to calculate national income, as they represent income received by the government rather than domestic factors of production.

What Should Be Subtracted from GDP to Calculate National Income