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This approach calculates National Income, NI. NI is the sum of the following components:
Labor Income
Rental Income
Interest Income
Profits
NI = W + R + i + PR
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Labor Income (W):
Salaries, wages, and fringe benefits such as health or retirement. This also includes unemployment insurance and government taxes for Social Security.
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Rental Income (R):
This is income received from property received by households. Royalties from patents, copyrights and assets as well as imputed rent are included.
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Interest Income (i):
Income received by households through the lending of their money to corporations and business firms. Government and household interest payments are not included in the national income.
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Profits (PR):
The amount firms have left after paying their rent, interest on debt, and employee compensation. GDP calculation involves accounting profit and not economic profit.
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View an Example
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Back to National Income Accounting
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