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Analysing Statement of Profit and Loss

Giving reason...

Question

Giving reasons, explain how should the following be treated in estimating National Income:

(i) Interest paid by banks on deposits by individuals

(ii) National debt interest

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Solution

(i) Interest paid by banks to individuals is included in the estimation of national income because it is a factor payment by a producer.

(ii) National debt interest is not included because it is a transfer payment. This loan is taken for consumption purposes.

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