The correct answer is option 3: interest received by a household from deposits in a bank
- Factor income refers to income earned by factors of production (land, labor, capital, and entrepreneurship) for providing productive services. It includes wages, rent, interest, and profit.
- Interest received by a household from deposits in a bank is considered factor income because it is a return on capital (a factor of production).
Why not the other options?
- Old age pension – This is a transfer payment, not factor income, as it is not earned through productive activity.
- Unemployment allowance – This is also a transfer payment given by the government, not an income earned by providing a productive service.
- Claim received by an injured worker from an insurance company – This is a compensation payment, not a payment for productive services, so it is not factor income.
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