Question

Which of the following affects national income?

• A. Goods and services tax
• B. Corporation tax
• C. Subsidies
• D. All of these

Hint:

Taxes (both direct and indirect) and subsidies are key adjustments used to move between different measures of national income (e.g., from market price to factor cost).

Answer 1

The Correct Option is D

All the listed items are integral to the calculation and composition of national income:

(A) Goods and Services Tax (GST): This is an indirect tax. Indirect taxes create a difference between the market price of a good and the income received by the factors of production. National income is often calculated at factor cost, which requires subtracting indirect taxes from market prices.
(B) Corporation Tax: This is a direct tax on the profits of companies. Corporate profits are a component of national income (under the income method), and corporation tax is a part of those profits.
(C) Subsidies: These are payments by the government that lower the market price of goods. To calculate national income at factor cost from market prices, subsidies are added back.
Since all three are involved in the calculation and distribution of national income, they all affect it.