National income is fundamentally based on which of the following broad measures?

Introduction / Context:
This question tests basic understanding of what national income measures in macroeconomics. Different ways of measuring national income exist, such as the production method, income method, and expenditure method, but all should conceptually arrive at the same aggregate value. The question asks you to identify the correct underlying concept among the options given.

Given Data / Assumptions:

• The term used is \"national income\" for a country.
• Options include state revenue, production of goods and services, net profit and expenditure, sum of all income fractions, and stock market growth.
• We must select the broad idea that best describes what national income is based on.

Concept / Approach:
National income is the total value of all final goods and services produced within a country's borders in a given period, usually a financial year, when measured as net national product at factor cost or similar aggregates. Although governments collect revenue and incur expenditure, these are not direct definitions of national income. Stock market movements also do not directly measure national income. Thus, the core idea behind national income is the production of goods and services in the economy.

Step-by-Step Solution:
Step 1: Recall the production method of measuring national income, which adds up the value added at each stage of production.Step 2: Remember that the income method sums wages, profits, rent, and interest, all of which are generated from production of goods and services.Step 3: Recognise that government revenue or profit are only parts of the economy and cannot represent total national income on their own.Step 4: Note that stock market prices reflect expectations and asset values, not the direct flow of goods and services produced.Step 5: Therefore, national income is fundamentally based on the production of goods and services in the economy.

Verification / Alternative Check:
Official definitions of GDP and related aggregates, which are closely linked to national income, always refer to the total market value of final goods and services produced in a country. Government revenue may rise or fall due to tax policies without a proportional change in production. Similarly, stock indices may be volatile without reflecting real output changes. This cross check confirms that the production of goods and services is the central foundation for measuring national income.

Why Other Options Are Wrong:
Total revenue of the state is only the income of the government sector, not of the entire nation. Net profit earned and expenditure made by the state focus again only on the government, ignoring households and private firms. The phrase \"sum of all fractions of income\" is vague and does not clearly state what is being added. Growth in stock market prices reflects asset price movements and investor sentiment, not national output or income.

Common Pitfalls:
Some learners mistakenly equate the government budget with the national economy and therefore confuse government revenue or expenditure with national income. Others focus heavily on stock market indices as indicators of economic performance and forget that indices do not directly measure the quantity of goods and services produced. Always link national income with production and remember that income and expenditure are alternative ways of valuing the same underlying output.

Final Answer:
National income is fundamentally based on the production of goods and services in the economy during a given period.