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Question

Giving reasons explain how should the following be treated in estimation of national income :
(i) Payment of corporate tax by a firm
(ii) Purchase of machinery by a factory for own use
(iii) Purchase of uniforms for nurses by a hospital

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Solution

(i) Payment of corporate tax is not included in the national income as it is a mere transfer payment from the firm to the government. It is a part of corporate profits which already form part of national income, therefore, it should not be separately included in national income (in addition to corporate profits).
(ii) Purchase of machinery by a firm for own use will be included in the national income as it is regarded as final consumption expenditure.
(iii) Purchase of uniforms for nurses by a hospital will be included in national income, since the uniforms are consumed by the final consumers (here in this cases, it is 'nurses'). At the same time, from the point of view of the hospital, such expenditure is regarded to be investment expenditure for the business purposes, hence, should be included in national income as per expenditure method. If this aspect is viewed from the perspective of income method, then also such expenditure should be included in the national income, as it is a part of compensation of employees (specifically categorised in sub-component 'wages and salaries in kind').

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