Which of the following best explains how wages and salaries differ from interest and rent income?

• A. Wages and salaries are always higher than interest and rent income.
• B. Wages and salaries are earned by providing labor, while interest and rent income are earned from owning capital or land.
• C. Interest and rent income are taxed at a higher rate than wages and salaries.
• D. Wages and salaries are passive income, while interest and rent income require active work.

Answer: (B)

Verified step by step guidance

1. Identify the nature of wages and salaries: they are payments received in exchange for labor or work performed. This means they are earned income derived from active participation in the production process.
2. Understand interest and rent income: these are returns earned from owning capital (interest) or land/property (rent). They represent income generated from ownership rather than direct labor.
3. Compare the two types of income based on their source: wages and salaries come from providing labor, while interest and rent come from owning assets.
4. Evaluate the incorrect options: for example, wages and salaries are not always higher than interest and rent income, and the tax rates can vary depending on jurisdiction, so these statements are not universally true.
5. Conclude that the key difference lies in how the income is earned—active labor for wages and salaries versus passive ownership for interest and rent.