One reason the total sum of the income categories does not equal GDP is that
A)GDP values goods and services at market prices and the income approach values them at factor cost.
B)GDP values goods and services at retail prices and the income approach values them at wholesale cost.
C)taxes are generally larger than subsidies and the depreciation of capital is negligible.
D)GDP does not include depreciation,which is part of the income categories.
E)people do not spend all their income,so the value of consumption expenditure is less than the value of wages.

Question

Quizplus · Accepted Answer

The income approach values goods and services at factor cost, which includes the incomes earned by factors of production (wages, interest, rent, and profits). However, GDP values goods and services at market prices, which includes indirect taxes and subsidies. Therefore, the total sum of the income categories will not equal GDP due to the inclusion of indirect taxes and subsidies in the latter.

One Reason the Total Sum of the Income Categories Does