Question

Explain the concept of private income.

Answer 1

1. The term “private income” describes money earned by private individuals from any source, whether or not it is productive. We can calculate it from NNP at factor cost by applying specific additions and deductions.
2. “Private income is the total of factor incomes from all sources and current transfers from the government and the rest of the world accruing to the private sector.”
3. To express private income, use the following formula:
4. Private income = Income from net domestic product accruing to the private sector + Net factor income from abroad + Net transfer payment from the government + Transfer payments from the rest of the world + interest on national debt
5. It includes both earned (like wages) and unearned (like gifts or pensions) income. It includes both factor income and transfer income. It is broader than Personal Income, as it includes income earned by private enterprises as well.