How to Calculate National Income
National income is the sum of all income earned by a nation's resource owners: wages, rent, interest, and profit.
The National Income formula
Calculator
Add wages, rent, interest and profit to get national income and see which component carries the most weight.
Wages, salaries and benefits paid to labor.
Payments to owners of land and property.
Interest households receive, net of interest they pay.
Income from unincorporated businesses.
Profits earned by incorporated firms, before dividends are paid out.
Every payment to a resource owner adds up to $15,000 billion, the income side of the same output the expenditure approach measures.
- National income in trillions
- $15
- Profit income (proprietors' + corporate)
- $3,900
- Labor's share of national income
- 65.3%
- Largest component
- Compensation of employees
The same total divided by 1,000, which is how the national accounts usually quote it.
The return to entrepreneurship, split between unincorporated and incorporated firms.
Compensation of employees is normally the largest slice, around two thirds of the total.
Which factor payment dominates the income side of the accounts.
How to calculate National Income, step by step
- 1Add compensation of employees. Wages, salaries, and benefits paid to labor, normally the largest single share.
- 2Add rental income. Payments to the owners of land and property for the use of those resources.
- 3Add net interest. Interest received by households that supplied financial capital, net of the interest they paid.
- 4Add profit. Proprietors' income from unincorporated businesses plus corporate profits.
- 5Sum the components. The total is national income, the payment side of the same output the expenditure approach measures.
Worked example: National Income
In a hypothetical economy, compensation of employees is $9,800 billion, rental income $700 billion, net interest $600 billion, proprietors' income $1,500 billion, and corporate profits $2,400 billion. National income = 9,800 + 700 + 600 + 1,500 + 2,400 = $15,000 billion, or $15 trillion.
National Income questions
Is national income the same as GDP?
No, GDP also covers depreciation and taxes on production, which sit in the price of output but are never earned as factor income, so GDP is the larger figure.
What is the difference between national income and personal income?
National income is income earned, while personal income is income received, so personal income adds transfer payments and removes items such as retained corporate profits.
Why should national income and total spending match?
Every dollar spent on output becomes income for someone who helped produce it, so the income and expenditure sides measure the same flow.
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free, no spam.
No spam. Unsubscribe anytime. Read our privacy policy.
Keep track of what you have studied
A free EconLearn account adds progress tracking, your quiz history, and achievements. Studying here is free either way, and there is nothing to pay for as a student.
Create a free accountAlready have one? Sign in
Last updated