The Circular Flow Of Income 

The circular flow means the  unending flow of production of goods and services, income and expenditure, in any economy it so the distribution of income in a circular manner between the production unit and households.

These are land, labour, capital, and entrepreneurship.

• The payment for the contribution made by fixed natural resources is known as rent.

• The payment for the contribution made by a human worker is known as wage.

• The payment for the contribution made by capital is known as interest.

• The payment for the contribution made by interpreneurship is known as a profit.

Explanation:-. 

The outer loop of the diagram shows the flow of factor services from household to firm and the corresponding flow of  factor payment from firms to households.

The inner loop shows the flow of goods and services from firms to household and the corresponding flow of consumption expenditure from household to firms.

The entire amount of money, which is paid by firms  as a factor payment is paid back to back by the factors owners to the firms.

Method of Calculating National Income 

There are three non method by which national income is determine these are:-

• value added method
• expenditure method
• income method

Value Added Method

The value added method is also known as the product method or inputs method. Its primary objective is to calculate national income by taking the value added to a product during the various stage of production into account.

Therefore the formula for calculating the national income by the value added method can be expressed as.

National Income ( NI )=( NDpfc )+Net factor income from abroad 

Expenditure Method 

The expenditure method of national income calculation is based on the expenditure taking place in the economy the expenditure that happen in an economy can be done by individual household business enterprises and the government.

Therefore the formula for calculating the national income by the expenditure Method can be expressed as.

National Income ( NI )=C+G+I+(X - M)

or

National Income (NI)=C+G+I+NX

Income Method 

The third method to calculate national income is the income method. It is based on the income  generated by the individual by providing services to the other people in the country either individually or by using the asset at disposal.

The income method takes the income generated from land, capital in the form of rent, interest wage,  and profit into calculate consideration.

The national income by income method is calculated by adding up the wages, interest earn on capital,  profit earned, rent obtain from land,  and income generated by the self-employed people in an  economy. It is known as NET domestic product at factor costs or NDPfc

It can be expressed in a formula as:- 

NNPfc=NDPfc+Net factor income from 

                             abroad