Aggregate Income: Definition & Formula

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  • 0:00 What Is Aggregate Income?
  • 0:53 Calculating Aggregate Income
  • 3:15 Lesson Summary
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Lesson Transcript
Instructor: Adam Gifford
Some countries are wealthy and others are not so wealthy. There are a number of methods used to measure the wealth of a country's economy. In this lesson, we will discuss the aggregate income of a country and how it is determined.

What Is Aggregate Income?

Imagine a wealthy island nation called New Hamburg. The country has a thriving private sector and a strong and stable government. It's wealthy, but how is that wealth actually measured? Is it from how much the government collects in taxes? Or how about measuring it by the total revenue of the nation's businesses? What about the average citizen's income? These may all play a part in figuring out the answer, but none of these measurements tell the whole complex story of the country's wealth. To measure that wealth, economists have devised a number of tools and methods involving complex calculations. One of those methods involves calculating the aggregate income of a particular country. The aggregate income is the total amount of income that is generated by all people, businesses, and government in a given country. It's a tool used in economics to measure the wealth of a nation and compare it to that of other nations.

Calculating Aggregate Income

In order to calculate aggregate income, economists first determine the value of a number of variables. Those variables include:

  • Employee income, which is the combined incomes of all employees in a nation before any taxes are taken from that income.
  • Business owner income, earned by business owners through the operation of their businesses.
  • Rental income: Income that is earned by real estate owners who charge rent for the use of their properties.
  • Corporate income that's earned by corporations.
  • Interest income: Income that is earned through the payment of interest on invested funds.
  • Government income, earned through the collection of taxes or other means.
  • Government subsidies that the government pays to employees, business owners, real estate owners, corporations and interest earners.

To work out a formula for calculating aggregate income, let's start by assigning each of these variables a letter. We can do so by shortening each variable to its first letter, which gives us this set of letters:

  • E = Employee income
  • B = Business owner income
  • R = Rental income
  • C = Corporate income
  • I = Interest income
  • G = Government income
  • S = Government subsidies

To calculate the aggregate income, we use this formula: E + B + R + C + I + (G - S) = aggregate income. Remember that we begin by subtracting government subsidies from the government income, then add the difference to all other variables.

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