In GNP accounting, what adjustment converts domestic product into national product?
Answer and explanation
Correct answer: Net Factor Income from Abroad
Domestic product is based on the location of production, whereas national product is based on the production or factor income associated with a country's normal residents. The bridge between the two is Net Factor Income from Abroad, or NFIA. Therefore, GNP = GDP + NFIA, using the same valuation basis. Depreciation changes a gross measure into a net measure, private consumption is a component of expenditure, and net exports concern trade in goods and services rather than factor-income residence.
Frequently asked questions
What is the correct answer to this question?
Net Factor Income from Abroad
Why is this the correct answer?
Domestic product is based on the location of production, whereas national product is based on the production or factor income associated with a country's normal residents. The bridge between the two is Net Factor Income from Abroad, or NFIA. Therefore, GNP = GDP + NFIA, using the same valuation basis. Depreciation changes a gross measure into a net measure, private consumption is a component of expenditure, and net exports concern trade in goods and services rather than factor-income residence.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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