GDP, National Income, and Personal Income

Under the expenditure approach, GDP is calculated as follows:

GDP = Personal Consumption + Investment + Government Consumption + (Exports – Imports)

GDP = C + I + G + (X-M)

Under the income approach, GDP is calculated as follows:

GDP = National Income + Capital Consumption Allowance + Statistical Discrepancy

Domestic Income is the total income earned by the people and businesses within a country’s borders. National Income is the total income earned by citizens and businesses of a country, no matter where they are located. National Income includes income received by all factors of production:

• Compensation to employees: Wages, salaries, Social Security benefits, and employee benefit plans plus the monetary value of fringe benefits, tips, and paid vacations.
• Corporate and govt. profits before taxes: All income earned by the stockholders of corporations.
• Non corporate business net income: All forms of income earned by self-employed individuals and the owners of unincorporated business, including unincorporated farmers.
• Interest income: The interest income received by households and government minus the interest they paid out.
• Rent: Income of persons is the income received by individuals for the use of their non-monetary assets.
• Indirect business taxes – subsidies