Class No.9: Unit 1 (National Income and related aggregates) Objective: After the class/ content you will become familiar with the components of operating surplus (income from property)

Operating surplus:

It is an income generated from property (rent + ) and income from entrepreneurship (profit). Royalty is included in rent. Alternatively, it is the sum of rent, interest and profit.

We can also define ‘It is Net at FC (i.e. domestic income) minus Compensation of employees (traditionally called wages) and mixed income of self-employed.’

Factor income (NDPFc)

Mixed income of self Compensation of employees Operating surplus employed

Income from property Income from entrepreneurship

Rent Royalty interest Profit

dividend profit tax Undistributed profit

(Note: Interest on National Debt is not the part of Interest from property and thus it is ignored)

Components of operating surplus:

(1) Income from Property: It is an income generated from the property in form of rent, interest and royalty.

(i) Rent: It is any periodic payment to an owner or factor of production in excess of the costs needed to bring that factor into production. It also refers as ‘’ as it is received by landlord without any effort.

(ii) Royalty: A royalty is a legally-binding payment made to an individual, for using his or her originally- created assets, including copyrighted works, franchises, and natural resources. For example, use of mineral deposit such as coal, oil etc. Royalty is also associated with musicians, who receive such payments whenever their originally-recorded songs are played on the radio or television, used in movies, performed at concerts, bars, and restaurants, or consumed via streaming services.

(iii) Interest: It is an amount earned for lending funds to the production units. It also includes imputed interest of funds provided by the entrepreneur. (Note: Interest income includes only interest on loans taken for productive services only)

The following categories of interest should not be included: (a) Interest on national debt (or interest paid by government on national debt): It is assumed that such interest is paid on loan taken for consumption purpose. (b) Interest paid by one firm to another firm as it is already included in the profit of the firm which pays it.

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