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Question
Giving valid reasons, explain how the following would be treated while estimating National income:
- Payment of indirect taxes by a firm.
- Purchase of goods by foreign tourists.
Solution
- Payment of indirect taxes by a firm: It is not included in national income because it is paid to the government, and national income includes factor income accrued to factors of production.
- Purchase of goods by foreign tourists: It is included in national income because it represents demand for goods manufactured in the country, and national income includes domestic income.
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