INCOME METHOD of national income measuring

         INCOME METHOD :-

                                      According to income method, National     income measures in terms of payments made to primary factors of   productions.

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Ø NNP_FC or NI = Sum total of factors incomes paid out to residents only

Ø NI _{by income method} = GDP_MP – Depreciation – Net indirect Tax + Net factor income from abroad.

Ø GDP_{MP –BY income method} = Depreciation + Net indirect tax (tax - subsidy)

                                      +Compensation of employees

                                + Operating surplus
                                                                                                                                       





                             
                                       + Net factor income from abroad.

**Stapes:-

i)                  Identification and classification of producing enterprises which employ factor inputs

                                a) Primary sector

                                b) Secondary sector

                                c) Tertiary sector

                           ii)     Classification of factor incomes

a)   Compensation of employees

b)  Operating surplus

c)    Mixed income

d)  Net factor income from abroad

·   Precautions Involved in calculate national income by Income Method :-

i)Transfer Payment :-

                                        Transfer payments are should not be included in national income. Because transfer are not a productive activities

Example:-

                   Old-age pension, gifts etc.

                  There is no flow of goods and services in an economy with  this payments.

                 

                 ii)Illegal income :-

                                                                 Income through illegal activates, like Smuggling, black marketing, gambling etc.  is not included in the national income. Income only by way of legal activities is included.

                
                 iii)Income from the sale of second-hand goods and capital:-

                              Income or money receive by way of selling second hand goods or capital assets.

                   
Example:-

                          saling of Old Scooter. etc.

                   iv)Corporation tax and income Tax :-

                                                               
since corporation tax is a part of profit, it should not be separately included in national income .

                 v)  Indirect tax:-

                                                  Indirect taxes are not included in National Income because national in or NI = NNP_FC or Net National Product at factor cost, if we add the 

indirect tax then it converted in to Net National Product at Market price.

                 vi) Domestic Services

                 vii) Windfall Gains.