Question

Explain various components of incomes in the income method of estimating national income.

Answer 1

Components of Incomes in the Income Method of Estimating National Income:

1. Compensation of Employees: Income earned by labour for providing factor services. It includes:
   • Wages and salaries in cash
   • Wages and salaries in kind (perks, benefits)
   • Employer’s contribution to social security schemes (PF, pension, gratuity).
2. Operating Surplus: Includes retained earnings, dividends, and taxes on corporate income.
   • Rent: Income from the use of land and buildings.
   • Interest: Income from lending capital.
   • Profit: Income earned by entrepreneurs.
   • Royalty: Income from patents, copyrights, and natural resources.
3. Mixed Income of the Self-Employed: The earnings of self-employed individuals who contribute both labour and capital. Examples are farmers, shopkeepers, and small business owners. It includes a mix of wages, rent, interest, and profits.