How the factor payments and the transfer payments are treated in the estimation of national income?
There is real flow of factor services from household to firms and there is money flow from the firms to the households in the form of rent, interest, profit and wages. These factor payments increase the production of goods and services in the economy.
In the case of charity or any grant from one sector to another sector, the payments transferred do not cause any production of goods and services in the economy.
Therefore, the factor payments are included in the estimation of national income and the transfer payments are not included in the estimation of national income.
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