GDP calculation by Income method

We read about Factor of Production and Factor payments. GDP calculation by income method calculate factor payment of each sector first and then add up all sectors factor payment.

1 = Compensation of Employees
Compensation of employee can be in:
A) Wage and salaries: a) In Cash (@ regular interval) b) In Kind (Mobile bill, transport etc)
B) Social security contribution by employer

2 = Rent & Royalties
Rent – Amount paid by tenant to landlord. Concept of Imputed rent: When the owner herself/himself occupy the house.
Royalties – Royalty from patents, copyrights etc.

3 = Interest Income
Interest received by household through lending their money to firms. Firm use these money & in return pay interest to lender or one who purchased financial asset. example: I purchased abc bonds and abc gives me 5% of bond value each year.

**Government Interest payment or money paid by government when you purchase government bond is seen as transfer, as no production happens.

4 = Profit
It is residual factor income to the entrepreneur. For her service and dedication to the business she runs. She may use it for : a) Paying tax. b) dividend to company shareholders. c) Remaining money for future purpose or her personal expenses.

Now, 1 + 2 + 3 + 4 = Net Domestic product @ fc
To calculate national income (Net national Product @ fc) :
NDP @ fc + NFIA = NNP @ fc

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