BANKING AFFAIRS

Detailed explanation-1: -No, it is not included in the national income as it is the interest paid on loans taken by government to meet its consumption purposes.

Detailed explanation-2: -(ii) National debt interest is not included because it is a transfer payment. This loan is taken for consumption purposes. Q. How will you treat the following while estimating National Income?

Detailed explanation-3: -The interest on the national debt is how much the federal government must pay on outstanding public debt each year. The national debt includes debt owed to individuals, to businesses, and to foreign central banks, as well as intragovernmental holdings.

Detailed explanation-4: -hence it is added separately to compute Personal Income. Private income doesn’t include National debt interest because ‘Income method’ doesn’t include any TRANSFER payments; it only consider FACTOR payments. Hence because National Debt Interest is a TRANSFER payment, we have to add it while computing Personal Income.

Detailed explanation-5: -ii National Debt Interest-It will not be included as it is assumed that Government borrows for consumption Purpose. Therefore it is treated as transfer income.