Question

In the absence of indirect taxes or subsidies, the total factor payments (wages, interest, rent and profit) in an economy are equal to:

Options

• Total consumption expenditure only

• Aggregate savings in the economy

• Total government spending

• The value of final output (GDP)

Answer 1

Since national income is the sum of all factor payments, and these payments are made for producing final goods, total factor payments equal the value of final output (GDP) when there are no indirect taxes or subsidies. Hence national income equals the aggregate value of final goods output.