In the national concept of NNP, how is factor income earned by foreign companies from the domestic territory treated?
Answer and explanation
Correct answer: It is treated as factor income paid to the rest of the world and is deducted in calculating NFIA
National income is based on the income of normal residents, whereas domestic income is based on production within the domestic territory. Factor income earned in the territory by foreign companies belongs to non-residents and is therefore a payment to the rest of the world. NFIA is factor income received from abroad minus factor income paid abroad, so this income reduces NFIA. It is not depreciation or an indirect tax.
Frequently asked questions
What is the correct answer to this question?
It is treated as factor income paid to the rest of the world and is deducted in calculating NFIA
Why is this the correct answer?
National income is based on the income of normal residents, whereas domestic income is based on production within the domestic territory. Factor income earned in the territory by foreign companies belongs to non-residents and is therefore a payment to the rest of the world. NFIA is factor income received from abroad minus factor income paid abroad, so this income reduces NFIA. It is not depreciation or an indirect tax.
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 - NNP.
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