This approach calculates National Income, NI. NI is the sum of the following components:
Labor Income (W)
Rental Income (R)
Interest Income (i)
Profits (PR)
NI = W + R + i + PR
Labor Income (W):
Salaries, wages, and fringe benefits such as health or retirement. This also includes unemployment insurance and government taxes for Social Security.
Rental Income (R):
This is income received from property received by households. Royalties from patents, copyrights and assets as well as imputed rent are included.
Interest Income (i):
Income received by households through the lending of their money to corporations and business firms. Government and household interest payments are not included in the national income.
Profits (PR):
The amount firms have left after paying their rent, interest on debt, and employee compensation. GDP calculation involves accounting profit and not economic profit.
Using the Income Approach
Table also contains the data necessary to calculate GDP using the income approach.
| Transfer Payments | $54 |
| Interest Income (i) | $150 |
| Depreciation | $36 |
| Wages (W) | $67 |
| Gross Private Investment | $124 |
| Business Profits (PR) | $200 |
| Indirect Business Taxes | $74 |
| Rental Income (R) | $75 |
| Net Exports | $18 |
| Net Foreign Factor Income | $12 |
| Government Purchases | $156 |
| Household Consumption | $304 |
In this case we use the formula:
W is the wages that are represented by $67 in the table.
Rental income is the R and is $75.
Interest income is i and is $150.
PR are business profits and are $200.
Therefore:
