Question

To compute national​ income, which of the following items are added to net domestic product​ (NDP)?

I. business income adjustments net of indirect business taxes and transfers
II. capital consumption allowance
III. U.S. net income earned abroad
A. I only
B. II only
C. both I and III
D. both II and III

Answer 1

To compute national income, both business income adjustments net of indirect business taxes and transfers (I) and U.S. net income earned abroad (III) must be added to net domestic product (NDP). On the other hand, capital consumption allowance (II) is subtracted from NDP to calculate net national product (NNP).

Step-by-step explanation:

To compute national income, both I and III must be added to net domestic product (NDP). Business income adjustments net of indirect business taxes and transfers (I) account for the adjustments made to the income of businesses after deducting taxes and including transfers. U.S. net income earned abroad (III) refers to the income earned by U.S. citizens and businesses from their activities outside of the country. On the other hand, capital consumption allowance (II) is subtracted from NDP to calculate net national product (NNP). Therefore, the correct answer is option D - both II and III.