What problem is most likely if income earned from production is wrongly classified under the income method?
Answer and explanation
Correct answer: Double counting or an incorrect estimate of total income
The income method adds factor incomes generated by current production, such as wages, rent, interest, and profit. If an item is placed under more than one income head, double counting occurs; if it is placed under the wrong category or omitted, the total is misstated. Correct classification is therefore essential for a reliable national-income estimate. The other options are unrelated to accounting classification.
Frequently asked questions
What is the correct answer to this question?
Double counting or an incorrect estimate of total income
Why is this the correct answer?
The income method adds factor incomes generated by current production, such as wages, rent, interest, and profit. If an item is placed under more than one income head, double counting occurs; if it is placed under the wrong category or omitted, the total is misstated. Correct classification is therefore essential for a reliable national-income estimate. The other options are unrelated to accounting classification.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
