Income Method in CUET Economics 2026: Definition & Formula

Overview: National income can be calculated in various ways. The income method in CUET economics is one of the best methods for calculating national income (NNPFC). Learn the formula, components, and exclusions in detail for better clarity. 

The income method in CUET economics helps understand a country's progress. The income method of national income for CUET economics syllabus includes income (wages, rent, interest, and profit) from all factors of production in a country, such as:

• Capital & Land
• Labour & Entrepreneurship 

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Note: The video is for 2025, but the content is also relevant for 2026.

CUET 2026 Income Method Calculation Flow

In CUET Economics, national income is not calculated in one step. It is found slowly by following a proper order. When this order is clear, numerical questions become easy.

The calculation starts with Gross Domestic Product at Market Price, also called GDP at market price. Market price means the price paid by buyers while purchasing goods and services.

Next, this market price must be converted into factor cost. This is done because national income is measured at factor cost.

To find GDP at factor cost, indirect taxes are subtracted and subsidies are added. Indirect taxes increase prices, while subsidies reduce prices.

After this step, depreciation is removed. Depreciation means the loss in value of machines, tools, and buildings used in production. Once depreciation is subtracted, we get Net Domestic Product at Factor Cost. This value shows the income generated inside the country.

The final step is adding Net Factor Income from Abroad (NFIA). NFIA is the difference between income earned from other countries and income paid to them. After adding NFIA, the final figure is obtained. This figure is called National Income or Net National Product at Factor Cost (NNPfc). This method is known as the income method because it adds incomes like wages, rent, interest, and profit.

CUET 2026 Economics Measurement of National Income Syllabus: Definition

Economics is one of the significant domain subjects in the CUET exam. In this, national income is one of the major topics to study. 

National income, often known as gross national income, is the total amount of money earned by all businesses and residents in a nation over a specific period.

• An alternate definition of national income would be the total value of all goods and services generated over a certain period.
• It is, therefore, the culmination of all economic activity within a nation during a year.
• It includes the earnings of all production components, such as rent, interest, and profits, received by a nation's labour force, capital, and land.
• The number comprises both money from foreign sources and the nation's gross domestic product (GDP).
• It helps to comprehend the nation's advancement as well.

There are several methods for calculating the national income. The standard 3 are: 

• Value-added method
• Income method
• Expenditure method

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CUET 2026 Economics Measurement of National Income Syllabus: Income Method

The income method in CUET Economics syllabus calculates national income based on the flow of factor revenues. Four factors are associated with every production activity: land, labour, capital, and entrepreneurship.

• Labourers receive their wages, the land gets rent, capital accrues interest, and entrepreneurship gets profit, each earning through individual means.
• Apart from that, self-employed individuals like doctors, CAs, advocates, etc., employ their capital and labour. Thus, their income is regarded as mixed income.

Therefore, the income method in CUET economics syllabus measures national income through these factor payments. Thus, it is also known as the ‘factor payment method.’

How to Calculate National Income Using the Income Method in CUET Economics? 

• To arrive at national income using this method, you must sum up all the individual income in a country within a specific period.
• It includes wages and salaries, land rent, interest gained on capital, and income of self-employed individuals.
• The income method of national income for CUET conclusively indicates the distribution of national income among every income group of a country.

Income Method Formula CUET Economics

Your CUET Economics preparation is highly dependent on conceptual understanding and strong memorization. You must learn the formulas carefully to solve questions quickly and accurately.

The formula to solve CUET 2026 economics measurement of national income income method questions is: 

National Income (NNPFC) = Net Domestic Product at Factor Cost (NDPFC) + Net Factor Income from Abroad (NFIA)

• NDPFC = Compensation of Employees + Operating Surplus + Mixed-Income
• Operating Surplus = Rent + Interest + Profit

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Components of Factor Income

Factor income is an essential part of the income method in CUET Economics. Summing up all the factor incomes within a country for a period results in domestic income or NDPFC. There are three components of employee factor income compensation: operating surplus and mixed-income.

1- Compensation to Employees (COE)

Employee compensation refers to the remuneration paid by an employer to his/her employees for their productive services. It includes all monetary and non-monetary employee benefits, directly or indirectly.

COE comprises of 3 elements:

• Wages in Cash: This includes every monetary benefit, such as wages, bonuses, commissions, and dearness allowance.
• Wages in Kind: This includes every non-monetary benefit that employees receive from their employers, like home, car, medical, and educational facilities. 
• Employer’s Contribution to Social Security Schemes: It includes the contributions employers make to social security plans, such as employees' provident funds, gratuities, pension plans, etc.

2- Operating Surplus

Operating surplus is also divided into 3 categories:

• Rent: Rent arises from the ownership of properties. Income under this head comprises both actual rent and imputed rent. 
• Interest: It refers to the interest amount received for loaning funds to a manufacturing unit. This interest comprises interest paid on loans taken for production units, actual interest, and imputed interest.
• Profit: This is the entrepreneur's residual income after paying other production factors. 

3- Mixed-Income

• Self-employed individuals and unincorporated businesses generate this form of income.
• Mixed income arises when elements of factor incomes cannot be separated, such as when a doctor runs his/her clinic.

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Exclusions in the Income Method in CUET Economics

The following measures must be taken to solve CUET economics income method questions to get the national income correctly:

• All forms of transfer income, such as old-age pensions, unemployment benefits, etc.
• Capital gains, second-hand products, and selling of stocks and bonds are excluded.
• Wealth, gift taxes, and indirect taxes, such as sales tax and excise duties, are also excluded.
• Smuggling, black-marketing, other unlawful operations, and windfall income (e.g., from lotteries) are not included.
• The value of self-consumed services such as those provided by housewives is not included.

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Key Takeaways 

The income method in CUET economics is one of the simple methods that captures the contribution of various economic sectors in the country. 

• The components of the income method are wages, rent, interest, and profits.
• Solve different types of questions from CUET economics national income questions and answers pdf regularly. 
• Seek expert guidance from Supergrads CUET Online Coaching to strengthen your conceptual understanding and aim for a 200/200 score in CUET Economics.