Question

State the steps pertaining to the estimation of National Income, under the Income Method.

Hint:

The Income Method focuses on the income generated through production, and helps in understanding the income earned by individuals and firms from their contributions to economic activity.

Answer 1

The steps for estimating National Income under the Income Method are as follows:
1. Calculate Compensation of Employees (CE):
This includes the total remuneration (wages and salaries) paid to employees for their contribution to the production process.
2. Add Gross Profits of Enterprises (GP):
The profits earned by firms after paying wages and other expenses. These profits represent the income generated in the economy.
3. Add Rent and Interest (R + I):
Income generated from land (rent) and capital (interest) is added here. This includes income from property and investments. 4. Add Net Indirect Taxes (NIT):
Net indirect taxes (taxes minus subsidies) are added as they reflect the difference between market prices and factor cost.
5. Sum of all Incomes:
The final National Income is calculated by summing the compensation of employees, gross profits, rents, interests, and net indirect taxes. This gives the total income of the economy.