Question

Will the following be included in the national income of a country? Give a reason for your answer:

Interest paid on loan taken to buy a personal car.

Answer 1

No, interest paid on a loan taken to buy a personal car is not included in the national income. People pay this interest on loans they take for personal consumption, not for any productive activity. National income includes only factor incomes earned through the production of goods and services. Since this interest is related to consumption expenditure and not linked to any income-generating production process, it is not included in national income.