national income

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The total income of residents of a country, measured at factor cost after deducting capital consumption. This equals gross national product at factor cost less capital consumption. This sense is used in technical discussions of national income accounting concepts. National income does not include transfer payments, which merely transfer part of the national income from one set of individuals to another. If transfers are large, personal incomes before taxation can exceed national income. National income is derived from gross domestic product at factor cost by two main adjustments. First, capital consumption has to be subtracted; this is an estimate of the amount that would have to be spent on replacement investment to keep the nation's capital stock unchanged. Second, net property income from abroad has to be added, as national income refers to the income of residents, regardless of whether this arises from activities carried on domestically or abroad. The income approach is one of three methods used in national income accounting to measure aggregate economic activity: this approach works by adding the incomes of all sectors of the economy. The other approaches are the output method, looking at the outputs of various sectors, and the expenditure method, which adds the expenditures of various sectors of the economy. See also full employment national income.

Subjects: Economics.

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