Explain the income method of estimating national income.
Income Method. Income method measures national income from the side of payments made to factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year.
Under income method, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. The resulting total is called Domestic Income or Net Domestic Product at FC (NDPFC). Further by adding 'net factor income from abroad' to domestic income, we get National income (NNPFC). In income method, national income is measured at the stage when factor incomes are paid out by enterprises to factors of production. Since net value added by an enterprise is the result of services of factors of production, therefore, the same is distributed as factor income in the form of rent, wages, interest and profit among factors. Thus factor income and value added are one and the same thing.
