Income method measures National Income from the side of payments made to the primary factor of production for their productive services in an accounting year.

The components of factor income are (i) Employee’s Compensation, (ii) Profit, (iii) Rent, (iv) Interest, (v) Mixed income and (vi) Royalty.

Profit, rent, interest and other mixed income are jointly known as operating surplus.

National Income of a country can be defined as the total market value of all final goods and services produced in the economy in a year. In expenditure method, the National Income is measured by adding up the four flows, - namely C, I, G, X and M.

Thus, Y = C+1+G + (X-M) + (X- M) Where,

C = Total consumption expenditure

I = Total investment expenditure

G = Total government expenditure

X = Export,

M = Import

The average income of the people of a country in a particular year is called Per Capita Income for that year. So, it is National Income divided by population.

Per Capita Income

= National Income/Total population of the country

Though Per Capita Income is more reliable than GNP for many particular purpose.