National Income has a long history. Income has not always been clearly distinguished from wealth. Income is a flow that can only be measured over a period of time, such as a week, month, or year, whereas wealth refers to the value of a stock of assets that can be measured at a point of time. Attempts to estimate the Nation's Income go back over three centuries to the work of William Petty (1662). However, he was more concerned with measuring the wealth of the nation and taxable capacity than income. The same preoccupation with wealth rather than income is found a century later in Adam Smith's The Wealth of Nations (1776). The extent to which macroeconomic data can be influenced by ideas, concepts, and definitions is vividly illustrated by the distinction that Smith introduced between ‘productive’ and ‘unproductive’ labour. Smith argued that only workers who produced goods, as distinct from services, should be regarded as productive because only goods could add to the stock of the nation's productive capital equipment. This distinction was followed by many classical economists in the early nineteenth century, including Karl Marx in Das Kapital (1867). In the international version of that system developed after the second world war under the auspices of the United Nations it is stated that: ‘All fields of productive activity are based on material production, which is primary in comparison with the activities rendering services.’
The passage speaks of adding to the nation’s stock of productive capital equipment. As per NCERT, producers often use which of the following in the next period to buy new machinery or to build new factories?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Profits
What is left of revenue after paying rent, interest and wages is profit. Producers often use it in the next period to buy machinery or build factories.
Rent and wages are payments to land and labour, and taxes go to the State; none of these is the producer’s own fund for expansion.
NCERT (2026-27): “1.2 Context of the Present Book of Macroeconomics … After producing output with the help of these three factors of production, namely capital, land and labour, the entrepreneur sells the product in the market. The money that is earned is called revenue. Part of the revenue is paid out as rent for the service rendered by land, part of it is paid to capital as interest and part of it goes to labour as wages. The rest of the revenue is the earning of the entrepreneurs and it is called profit. Profits are often used by the producers in the next period to buy new machinery or to build new factories, so that production can be expanded. These expenses which raise productive capacity are examples of investment expenditure. …” |