Question

The factor cost method of estimating national income includes which of the following?

• A. Rent, wages, interest and profits
• B. Investment and savings
• C. Price
• D. None of the above

Answer 1

The correct option is A Rent, wages, interest and profits

The factor cost method takes into account the cost incurred to employ factors of production in the economy. The factors of production, namely, land is paid rent, labour is paid wages, capital is paid interest and entrepreneur is paid profits. These costs are taken into account to measure national income using the factor cost method.