Question

How is the following treated in national income calculation?

Pocket allowance of children

Answer 1

1. Pocket allowance given to children is excluded from national income as it is considered a transfer payment. It involves the transfer of money from parents to children without any production of goods or services in return.
2. National income includes only those payments linked to current economic activity and value addition.
3. Since pocket allowance does not involve any exchange for productive work, it is classified as unearned income and is not included in the national income estimation, as it does not contribute to actual output.