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Income Approach to Calculating GDP

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.

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