In national income accounting, the national income of a country is best defined as which of the following?

Introduction / Context:
National income is a central concept in macroeconomics and is used to measure the economic performance of a country. Different related aggregates exist, such as gross domestic product, net national product, and net national income at factor cost. Exams often test whether candidates know the correct conceptual definition of national income. This question checks your understanding of national income as the sum of factor incomes generated in an economy.

Given Data / Assumptions:

• The focus is on the definition of national income in an economic sense, not on the budget of the government.
• The options suggest possible definitions, such as government revenue, factor incomes, public sector surplus, and trade balance.
• We assume the textbook definition that national income is the sum of all incomes earned by factors of production like labour, capital, land, and entrepreneurship belonging to residents of a country.

Concept / Approach:
National income in the strict sense is usually defined as the sum of all factor incomes earned by residents of a country during a given period, typically one year. Factor incomes include wages and salaries, rent, interest, and profit. It is different from government revenue, which includes taxes and other receipts, and it is not the same as profit of public enterprises. It is also distinct from the trade balance, which is export minus imports. Therefore, the option that mentions the sum total of factor incomes captures the correct idea of national income.

Step-by-Step Solution:
Step 1: Recall that factors of production earn incomes like wages, rent, interest, and profit when they participate in production.Step 2: National income is calculated by adding up all these factor incomes earned by residents during a year.Step 3: Government revenue consists of taxes, fees, and other receipts, but this is different from the combined earnings of all factors.Step 4: Surplus of public sector undertakings refers only to profits of government enterprises and excludes private sector and other factor incomes.Step 5: Export minus imports gives the trade balance, which is just one component in the national accounts identity, not the definition of national income.Step 6: Therefore, the accurate definition among the options is the sum total of factor incomes.

Verification / Alternative check:
Macroeconomics textbooks often provide three methods of measuring national income: the income method, the output method, and the expenditure method. Under the income method, national income is specifically defined as the sum of all factor incomes. This cross check directly matches the wording of the correct option. The other options refer to different aggregates or partial components of the economy, which confirms that they are not correct definitions of national income.

Why Other Options Are Wrong:
The annual revenue of the government: This is government income, not national income. It includes taxes and fees but excludes many private sector incomes.

Surplus of public sector undertakings: This refers only to profits of government owned enterprises and ignores the rest of the economy.

Export minus imports: This is net exports, a component of aggregate demand, and not the definition of national income.

Common Pitfalls:
Some learners confuse government finances with national income and assume that national income is what the government collects as revenue. Others think that the trade balance alone represents economic strength. A clear understanding of factor incomes and their summation helps avoid such errors and provides a solid foundation for further macroeconomic study.

Final Answer:
National income of a country is best defined as the sum total of factor incomes.