Question

Explain how the following are treated in estimating National Income:

Earning of shareholders from the sale of shares.

Answer 1

Earnings of shareholders from the sale of shares are not included in the estimation of national income. This is because:

1. The sale of shares is considered a transfer of ownership of financial assets rather than a payment for goods or services. Such transactions do not involve the production of new goods and services.
2. National Income measures only the value of currently produced goods and services; sale and purchase of existing financial assets like shares and bonds are excluded.
3. However, services related to these transactions, such as commissions or brokerage fees earned by brokers or agents in facilitating the sale and purchase of shares, are included because they reflect current productive services.
4. Thus, the capital gains or earnings shareholders make from selling shares are not counted as part of National Income, but the brokerage fees associated with these transactions are included.