The Income Method estimates national income by summing up all factor incomes earned by residents for their contribution to production in a year.
It includes:
- Compensation of employees (wages, salaries)
- Rent
- Interest
- Profits (corporate tax, dividends, retained earnings)
- Mixed income of self-employed
- Net Factor Income from Abroad (NFIA)
Formula: National Income = Compensation of employees + Capital Incomes or operating surplus + Mixed Incomes + Net Factor income from abroad
Precautions:
- Exclude transfer payments and illegal incomes
- Include imputed rent of owner-occupied houses
This method focuses on incomes received, not expenditure or output.
