Net Factor Income from Abroad (NFIA)
Simply put, NFIA is the difference between factor income received from abroad and factor income paid abroad. Simply put it is the difference between the factor income earned from abroad by normal residents of a country (say India) and the factor income earned by non-residents (foreigners) in the domestic territory of that country (i.e. India). CSO defines it as "Income attributable to factor services rendered by the normal residents of the country to the rest of the world, less factor services rendered to them by the rest of the world." Symbolically :
NFIA = Factors income earned from abroad by residents - Factor income of non-residents in domestic territory
The normal residents of a country earn factor income not only within the domestic territory of a country but outside it also. Income from outside can be earned mainly in two ways, namely, (i) income from work, and (ii) income from property and entrepreneurship as shown below. Mind, it is a two-way affair since foreigners also earn similar income by working in domestic territory of other country.
(i)    Income from work (Compensation of employees). Income from work can be earned by working in the domestic territories of other countries earning thereby wages and salaries (or compensation of employees). For instance, suppose in 2006-2007, Indian resident scientists, engineers, doctors, dancers, masons, carpenters employed abroad earned factor income of र 10,000 crores whereas similar payments made to non-resident workers employed in domestic territory of India was to the tune of र 8,000 crores. Net compensation of employees from abroad to India would be र 2,000 (10,000 - 8,000) crores.
(ii)    Income from property and entrepreneurship (Rent, interest, profit). Factor income from abroad is also earned by owning property (like buildings, shops, factories, financial assets like bonds and shares in foreign countries) earning thereby rent and interest, Also profit is earned for undertaking entrepreneurial activities of producing goods and services. For instance suppose in 2006-2007, normal residents of India living temporarily abroad earned र 25,000 crores by way of rent, interest and profit and similar payments made to the rest of world were, say र 20,000 crores. Net income from property and entrepreneurship from abroad would be र 5,000 (25,000 - 20,000) crores.

Domestic Territory of a Country:By domestic territory, a layman means political frontiers of a country but in national accounting it is used in a wider sense. Domestic territory, as used in national accounting, has a special meaning and is much bigger than the political frontiers of a country. According to United Nation, “Economic territory is the geographical territory administered by a government within which persons, goods and capital circulate freely.”Clearly, freedom of circulation of persons, goods and capital is the basic criterion of economic territory for including in it. Thus, those parts of political frontiers of a country whose government does not enjoy these freedoms (e.g. embassies) are deemed to be outside the economic territory. (Remember that income generated within domestic territory during a year is called domestic income.) Mind, embassies are not included in domestic territory as they are not administered by the government of the country in which they are located. Again note that domestic territory is also called economic territory.

Real GDP is an inflation-adjusted calculation that analyzes the rate of all commodities and services manufactured in a country for a fixed year. It is expressed in foundation year prices and is referred to as a fixed cost price. Inflation rectified GDP or fixed dollar GDP. Real GDP is regarded as a reliable indicator of a nation’s economic growth as it solely only considers production and free from currency fluctuations.

Real GDP is regarded as a reliable indicator of a nation’s economic growth as it solely only considers production and free from currency fluctuations.

In the context of saving-investment approach to determine equilibrium level of income in the economy, it is important to understand the difference between the words Ex-ante and Ex-post because equilibrium occurs only when ex-ante savings and ex-ante investment are equal.
Briefly ex-ante expression indicates before the event and ex-post expression indicates after the event. For instance, what the households plan to cosume during the year in the beginning of the period is called ex-ante consumption but the amount of actual consumption measured at the end of the year is called ex-post consumption. Similarly, the amount of investment which the firms plan (or intend) to make during a period is ex-ante investment but what the firms have actually invested measured at the end of the period is ex-post investment. At any level of income, ex-post savings are always equal to ex-post investment. The significance of distinction between ex-ante and ex-post is that in the theory of determination of income, all variables are ex-ante (planned) variables.
Planned saving and Planned investment.

The savings which are planned (intended) to be made by all the households in the economy faring a period (say, a year) in the beginning of a period is called planned (or Wflnte) savings, The amount of planned or desired savings is given by the saving function ((.e., propensity to save).

The investment which is planned to be made by the firms or entrepreneurs in the economy during a period (say, a year) in the beginning of a period is called planned (or ex–ante) investment. The amount of planned investment is given by the investment demand function.

(i) Equilibrium in the economy occurs only when planned investment is equal to planned savings. Ex-ante savings and investment may or may not be equal. It is only when ex-ante savings = ex–ante Investment that equilibrium takes place. It means that an economy invests what it has saved. Such equilibrium is rare because savers and investors are different people who save and invest with different motives. [Mind, expost (actual) savings and expost (actual) investment are always equal at all levels of income.]

(ii) When planned saving is not equal to planned investment, i.e., when planned spending is not equal to planned output, then output will tend to adjust up or down until the two are equal again.

An externality is a positive and negative impact on economic activity on the others without involving any price. For example, emissions from driving contribute significantly to global warming. This leads to poor air quality and it contributes to significant health problems. People who breathe in this polluted air are at a higher risk for asthma and damage to the reproductive system. Thus, it affects the health of the people, which in turn reduces the welfare of the nation.

Deficit financing, practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds. Although budget deficits may occur for numerous reasons, the term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing government expenditures.

Value Added Method/Product Method/Output Method By this method, the total value of all the final goods and services produced in an economy during a given time period are estimated to obtain the value of domestic income.

Computation of National Income (By Value Added Method)

Expenditure Method By this method, the total sum of expenditures on the purchase of final goods and services produced during an accounting year within an economy is estimated to obtain the value of domestic income.

Final Expenditure It is the expenditure on the purchase of final goods and services during an accounting year. It is broadly classified into four categories:
(i) Private final consumption expenditure.
(ii) Government final consumption expenditure.
(iii) Investment expenditure or gross domestic capital formation.
(iv) Net exports, i.e. difference between exports and imports during an accounting year.

Computation of National Income (By Expenditure Method)

Methods of Calculating National Income

(i) Income method
(ii) Expenditure method
(iii) Product method or value added method or output method

Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. Depending on the way, the income is earned.
It can be classified into following components:
(i) Compensation of employees
(ii) Operating surplus (rent, profit and interest)
(iii) Mixed income of self-employed

Computation of National Income (By Income Method)

Managed floating: Managed floating is the contemporary international financial environment in which exchange rates varies from day to day, but central banks try to influence their nations’ exchange rates by purchasing and selling currencies to perpetuate a certain span.

The process of money creation by the commercial banks starts as soon as people deposit money in their respective bank accounts. After receiving the deposits, as per the central bank guidelines, the commercial banks maintain a portion of total deposits in form of cash reserves. The remaining portion left after maintaining cash reserves of the total deposits is then lend by the commercial bank to the general public in form of credit, loans and advances. Now assuming that all transactions in the economy are routed through the commercial banks, then the money borrowed by the borrowers again comes back to the banks in form of deposits. The commercial banks again keep a portion of the deposits as reserves and lend the rest. The deposit of money by the people in the banks and the subsequent lending of loans by the commercial banks is a never-ending process. It is due to this continuous process that the commercial banks are able to create credit money a multiple time of the initial deposits.

The process of creation of money is explained with the help of the following numerical example.