Using the income approach, what is the value of profits in an economy if total expenditure equals $250 billion, wages $150 billion, rental income $50 billion, and interest $25 billion?
A) $250 billion
B) $25 billion
C) $75 billion
D) $150 billion

Question

Quizplus · Accepted Answer

The income approach to evaluating the value of an economy is calculated by adding up all of the incomes earned by factors of production (i.e. wages, rental income, interest, and profits). Since the total expenditure is given at $250 billion, and the total earned income is $225 billion ($150 billion + $50 billion + $25 billion), the only missing income is profits. Therefore, profits must equal the difference between total expenditure and total earned income, which is $25 billion.

Using the Income Approach, What Is the Value of Profits