National income formula And items to …

National Income And Domestic Income:

1. National Income refers to net money value of all the final goods and services produced by the normal residents of a country during an accounting year.
2. Domestic Income refers to a total factor incomes earned by the factor of production within the domestic territory of a country during an accounting year.
3. The difference between these two incomes is Net Factor Income from abroad (NFIA), which is included in National Income (NY) and excluded from Domestic Income (DY).
4. Where NFIA is the difference between income earned by normal residents from rest of the world and similar payments made to Non residents within the domestic territory. NFIA = Income earned by Residents from rest of the world (ROW) – Payments to
Non-Residents within Domestic territory.
NY = DY + NFIA DY = NY – NFIA
Note:
Case I: Income paid to abroad is given, then to make NFIA inverse the sign. For this put income from abroad 0.
Example, Income paid to abroad =100
NFIA = Income from Abroad – Income paid to abroad
= 0 – 100 = -100 and vice versa.
Case II: Income from abroad is given, then NFIA = Income from abroad. For this put income paid to abroad 0.
Example, Income from abroad =100
NFIA = Income from Abroad- Income paid to abroad = 100 – 0 = 100 and vice versa Case III: If income from abroad and income paid to abroad both are given, then NFIA is the difference between them,
Example, Income from abroad =100 Income paid to abroad =120
NFIA = Income from Abroad- Income paid to abroad = 100 – 120 = (-) 20 and vice versa Case IV: Net factor income to abroad be given, then to make NFIA inverse the sign.
Net factor income paid to abroad (NFPA) = income to abroad – income from abroad.
Example,
(i) Net Factor Income to abroad (NFPA = 100). In this NFPA is positive, which means that income to abroad is greater than income from abroad, which makes,
NFIA = (-)100
(ii) Net Factor Income to abroad [NFPA = (-)100]. In this NFPA is negative, which
means that income to abroad is less than income from abroad, which makes,
NFIA = (+) 100