Which of the following is not included in the calculation of private income arising in a country?

Introduction / Context:
National income accounting distinguishes between different income concepts, such as national income, personal income, and private income. Private income refers to all income actually received by the private sector of the economy, including factor incomes and certain transfers. Understanding what is included and excluded in private income is essential for macroeconomics and public finance questions. This question asks which item among the options is not part of private income arising in a country.

Given Data / Assumptions:

• The focus is on private income, which covers incomes received by individuals and private enterprises.
• Options include factor income from net domestic product, net factor income from abroad, current transfers from government, current payments on foreign loans, and non business interest and dividend.
• We assume standard macroeconomic definitions of private income.
• We need to identify which item represents an outflow or payment rather than an income receipt.

Concept / Approach:
Private income includes factor incomes (wages, rent, interest, profit) earned by the private sector from production, net factor income from abroad that accrues to private residents, and current transfers such as pensions, subsidies, and other government payments to private entities. It also includes property income like interest and dividends received by households. However, current payments made on foreign loans, such as interest or principal paid to foreign lenders, are outflows and do not represent income received by the private sector. Therefore, such payments are not part of private income.

Step-by-Step Solution:
Step 1: List what normally enters private income: factor income from domestic production, net factor income from abroad, and transfers from government and the rest of the world received by the private sector.Step 2: Recognise that factor income from net domestic product at market prices is part of the income earned by private producers and is therefore included.Step 3: Note that net factor income from abroad, when positive and accruing to residents, is also part of private income.Step 4: Understand that current transfers from government add to private disposable resources and are included as well, as are non business interest and dividends received by households.Step 5: Identify that current payments on foreign loans represent money paid out to external creditors and are not receipts, so they are excluded from private income.

Verification / Alternative check:
Macro economics textbooks provide formulas for private income as the sum of factor incomes accruing to the private sector plus transfers from government and the rest of the world. They treat interest or principal payments on foreign loans as payments that reduce national disposable income rather than as components of private income. This confirms that current payments on foreign loans are not included in private income calculations.

Why Other Options Are Wrong:
Factor income from net domestic product at market prices clearly forms a part of income generated in the economy and flows partly to the private sector. Net factor income from abroad, when received by residents, increases private income. Current transfers from government, such as pensions and subsidies to households, are an important part of private income. Non business interest and dividend payments received by households are also components of private income. Thus, these options are correctly included in private income and cannot be the right answer to the question.

Common Pitfalls:
Students may confuse payments on foreign loans with interest income from abroad. The former is an outflow, while the latter is an inflow. Another confusion arises between items that affect the balance of payments and those that specifically enter private income. To avoid such errors, it is helpful to focus on whether a given item represents income received by private agents or a payment made by them.

Final Answer:
Current payments on foreign loans made by residents are not included in the calculation of private income arising in a country.