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Income is the flow of money (or goods in the case of income in kind) to the three factors of production: wages for labour; profit and interest for capital; rent for land. Incomes are not exclusive in an economy. Incomes move in a circular flow: labour earns wages which it spends on goods and services produced by firms; firms pay interest for capital, rent for land and wages for labour, all of which are again spent in some form on goods and services. Yet although incomes flow in this way, they do not all pass through all hands: one central problem of macroeconomics is how the income flow is determined, and how it is allocated between factors.
National income is a snapshot of this circular flow, and is the aggregate of all factor incomes—rent, wages, interest and profits—during any one period. More conventionally, it is determined statistically as the value of the economy\'s output (see gross domestic product).
One way of measuring the degree of equality in a society is by its income distribution: the way total personal income is divided between rich and poor. This is best depicted by a Lorenz Curve, which plots the shares of different groups of the population in total income. Governments use taxation to try to close this gap, but the biggest shifts in distribution in the industrialized world have been outside direct government control: for example, the transformation from mass unemployment in the 1930s to full employment in the 1950s brought with it a large redistribution of income. TF |
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