Given the following information, aggregate income equals: Profits $700 Rent 400 Compensation to employees 2,500 Interest 300 Taxes 1,000 Transfer payments 500

a. $4,400.

b. $3,900.

c. $3,400.

d. $2,900.

Option a is correct.

The aggregate income is $4,400

Explanation:

Aggregate income is one of the approaches used to calculate Gross Domestic Product (GDP) of a country.

Aggregate income is the sum total of income generated by individuals, businesses and government in an economy during a given period.

The income comprises of all returns given to factors of production, like interest, rent, profit and wages. It also includes all income generated by government through taxes.

To avoid double counting, transfer payment is excluded. Transfer payment refers to income given but not worked for. Example of sum income is subsidy given by the government to reduce price of goods and service.

Putting everything together, the following equation summarizes components of aggregate income.

Aggregate Income = Bi + Ci + Ri + Li + (Gi - Tp)

Bi = Business Income (Profit), Ci = Capital Income (interest), Ri = Rental Income (Rent), Li = Labour Income, Gi = Government Income, Tp = Transfer payment.

Using the information supplied in the question, the aggregate income will be:

= $700 + $400 + $2500 + $300 ($1000-$500)

= $4,400.