Question

Ms. Sarika is a retired government employee. Every month, she earns rental income from a property she owns. She has also invested in fixed deposit, which provide her with interest income. Occasionally, she receives cash transfers from her family members abroad.

Classify, Ms. Sarika’s income as factor income or transfer income, giving valid reasons in support of your answer.

Answer 1

• The income earned by Ms. Sarika in the form of rent and interest can be classified as factor income, as it is the income earned by the factors of production for rendering their services.
• Cash transfers received by Ms. Sarika from her family members abroad can be classified as transfer income, as it is the income received without rendering any productive service in return.