Why is donation kept separate from factor income in the income method?
Answer and explanation
Correct answer: Because donation is not received in return for a productive service
A donation is a transfer receipt because the recipient does not provide labour, land, capital, or entrepreneurship in exchange for it. The income method includes earnings generated by current factor services, such as wages, rent, interest, profit, and mixed income. Since a donation is not payment for production, adding it to factor income would overstate income generated by the production process. It is therefore recorded separately.
Frequently asked questions
What is the correct answer to this question?
Because donation is not received in return for a productive service
Why is this the correct answer?
A donation is a transfer receipt because the recipient does not provide labour, land, capital, or entrepreneurship in exchange for it. The income method includes earnings generated by current factor services, such as wages, rent, interest, profit, and mixed income. Since a donation is not payment for production, adding it to factor income would overstate income generated by the production process. It is therefore recorded separately.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Methods of calculating national income - Income Method.
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