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What is national income? What are its four components? Describe what each component would contain. Why...

What is national income? What are its four components? Describe what each component would contain. Why would rents and interest payments received by firms not be included in the rent and interest components?

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Answer #1

National income is the total value of final goods and services produced by the economy in an year. It is also called net national income after deducting indirect taxes. The four main components of national income by expenditure method of national income accounting is as C+I+G+NX

where C= consumption spending by households

I= Investment expenditure by firms and businesses

G= government purchases of goods and services

NX= net exports which is difference between exports and imports

Rents and interest payments are a part of factor payments like wages and salaries received by firms which come under operating surplus components of income approach to calculating national income.

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