This is the largest component of national income o

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This is the largest component of national incomeoProprietors’ income:includes all forms of income earned by self-employed individuals and the owners of unincorporated businesses,including farmersoCorporate Profits:include all the income earned by the stockholders ofcorporationsDividendsSome are kept within the firm to finance investmentsSome are used to pay corporate profit taxesoRental Income (of Persons):income received by individuals for the use oftheir nonmonetary assets (land, houses, offices)Also includes returns to individuals who hold copyrights andpatentsIncludes an imputed value to owner-occupied houses7
Home ownership is viewed as a business that produces a servicethat is sold to the owner of the businessoNet Interest:the interest income received by U.S. households andgovernment minus the interest paid outNational Income =Compensation of Employees + Proprietors’ income +Corporate Profits + Rental Income + Net interestFrom National Income to GDP:Not every dollar spent is someone else’s incomeGPD =National income – income earned from the rest of the world + incomeearned by the rest of the world + indirect business taxes + capital consumptionallowance + statistical discrepancyIn computing national income, we include the income earned by U.S. citizenswho work and live in other countries, but we do not include the income earned byforeigners who work and live in the U.S.To adjust for these incomes…oSubtract the income earned by U.S. citizens living abroad earned byproducing and selling goodsoAdd the income that non-U.S. citizens earned by producing and sellinggoods in the U.S.Indirect BusinessTaxes:made up mainly ofexcise taxes,sales taxes, and property taxes.oNot a part of national income because they are not considered a payment toany resourceoThese are monies collected by the government, not payments to land,labor, capital, or entrepreneurshipoThese are included in the purchases of goods/services and so are includedwhen the expenditure approach is usedoTherefore, we must add IBT to National IncomeCapital Consumption Allowance (Depreciation):the estimated amount ofcapital goods used up in production through natural wear, obsolescence, andaccidental destruction(a machine breaks down and cannot be replaced)oThe cost to replaces these capital goods are called capital consumptionallowance or depreciationoIt is added to national income8
Statistical Discrepancy:GDP and national income are computed using differentsets of data (computation error)Other National Income Accounting Measurements:Net Domestic Product:NDP = GDP – Capital Consumption Allowance(depreciation)oMeasures the total value of new goods available in the economy in a givenyear after worn-out capital goods have been replacedPersonal Income:the amount of income that individuals actually receive.

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