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The Income Approach Components of National Income

The Income Approach Components of National Income. 1. Compensation of Employees : wages and salaries paid to employees 2. Rents : income received from supplying property resources 3. Interest : income paid to the suppliers of money capital (loans, deposits, bonds...).

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The Income Approach Components of National Income

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  1. The Income ApproachComponents of National Income Alomar_111

  2. 1. Compensation of Employees: wages and salaries paid to employees • 2. Rents: income received from supplying property resources • 3. Interest: income paid to the suppliers of money capital (loans, deposits, bonds...) Alomar_111

  3. 4. Profits: two accounts: A. Owner’s income: income from partnerships and unincorporated businesses B. Corporate Profits: income to owners of corporations and subdivided into: • Corporate income tax • Dividends • Undistributed corporate profits (retained earnings) Alomar_111

  4. The previous are components of national income: income received from participating in production process. • Yet, need to add other components: Alomar_111

  5. From National Income to GDP • Indirect Business Taxes: sales taxes, excise taxes, business property tax, license fees, and customs duties. • Consumption of Fixed (private and social) Capital: to count depreciation allowance • Net Foreign Factor Income: the difference between income Kuwaitis gain from supplying resources abroad and income foreigners gain by supplying resources in Kuwait. Alomar_111

  6. Other National Accounts: • 1.Net Domestic Product (NDP)= GDP – Consumption of fixed capital (Dep.) “NDP is GDP adjusted for depreciation”. NDP – net foreign factor income – indirect business taxes = NI Alomar_111

  7. 2. Personal Income (PI): all income received (earned or not): NI – Social security payments – corporate income tax – undistributed corporate profits + transfer payments = Personal Income Alomar_111

  8. 3. Disposable Income (DI): personal income after paying personal taxes: After paying your tax, you can consume your income (C) and\or save (S): DI = C + S Alomar_111

  9. GDP - consumption of fixed capital= NDP- net foreign factor income- indirect business tax= NI- SS- corporate income taxes- undistributed corporate profits+ transfer payments= PI- personal tax= DI- C = S Alomar_111

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