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Question
Answer the following question:
Explain the income method of measuring national income.
Solution
According to the income method, national income is estimated by aggregating all the factor incomes (in the form of wages, rent, interest and profits) paid to the owners of these factors of production (land, labour, capital and enterprise) within the domestic territory in an accounting year.
That is,
NNPFC or National Income (NI) = Compensation of employees (COE) + Operating surplus + Mixed income +Net Factor Income from Abroad (NFIA)
Where:
Compensation of Employees (COE) includes
a. Wages and salaries paid in cash.
b. Compensation paid in kind
c. Employer's contribution to the social security schemes such as pension fund, provident fund etc.
Operating surplus includes rent, interest, royalty and profit.
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