If profit earned within the country is paid to a foreign investor, what will be the effect on NFIA?
Answer and explanation
Correct answer: It will increase factor income paid to abroad
NFIA is calculated as factor income received from abroad minus factor income paid to abroad. A foreign investor receiving profit generated by production inside the country represents a payment of factor income to a non-resident. Therefore, the paid-abroad component rises and NFIA falls, unless an offsetting increase in receipts occurs. Option B identifies the direct effect; it is not depreciation or a tax adjustment.
Frequently asked questions
What is the correct answer to this question?
It will increase factor income paid to abroad
Why is this the correct answer?
NFIA is calculated as factor income received from abroad minus factor income paid to abroad. A foreign investor receiving profit generated by production inside the country represents a payment of factor income to a non-resident. Therefore, the paid-abroad component rises and NFIA falls, unless an offsetting increase in receipts occurs. Option B identifies the direct effect; it is not depreciation or a tax adjustment.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Aggregates related to national income - GNP.
