Income
Income may be national income and personalincome. Whereas national income is defined as the total earned income of all thefactors of production—namely, profits, interest, rent, wages, and othercompensation for labor, personal income may be defined as total money incomereceived by individuals before personal taxes are paid. National income does notequal GNP(Gross National Product)because the factors of production do notreceive payment for either capital consumption allowances or indirect businesstaxes, both of which are included in GNP. The money put aside for capitalconsumption is for replacement and thus is not counted as income. Indirect taxesinclude sales taxes, property taxes, and excise taxes that are paid bybusinesses directly to the government and so reduce the income left to pay forthe factors of production. Three-fourths of national income goes for wages,salaries, and other forms of compensation to employees.
Whereasnational income shows the income that the factors of production earn, personalincome measures the income that individuals or households receive. Corporationprofits are included in national income because they are earned. Out of theseprofits, however, corporation profit taxes must be paid to government, and somemoney must be put into the business for expansion. Only that part of profitsdistributed as dividends goes to the individual; therefore, out of corporationprofits only dividends count as personal income. The factors of production earnmoney for social security and unemployment insurance contributions, but thismoney goes to government(which is not a factor of production), not toindividuals. It is therefore part of national income but not part of personalincome.
On the other hand, money received by individuals when they collectsocial security or unemployment compensation is not money earned but moneyreceived. Interest received on government bonds is also in this category,because much of the money received from the sale of bonds went to pay for warproduction and that production no longer furnishes a service to theeconomy.
The money people receive as personal income may be eitherspent or saved. However, not all spending is completely voluntary. A significantportion of our income goes to pay personal taxes. Most workers never receive themoney they pay in personal taxes, because it is withheld from their paychecks.The money that individuals are left with after they have met their taxobligations is disposable personal income. Disposable income can be dividedbetween personal consumption expenditures and personal savings. It is importantto remember that personal saving is what is left after spending.
1. Thispassage is mainly about
A. the classification of income.
B. thedifference between national income and personal income.
C. the concept ofincome.
D. the difference between disposable income and non-disposableincome.
2. Which of the following statements is true according to thefirst paragraph?
A. GNP equals national income plus indirect businesstaxes.
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