Which of the following items would be recorded positively in India’s Net Factor Income from Abroad (NFIA)?
Answer and explanation
Correct answer: Interest received by an Indian resident on a deposit in a German bank
NFIA is calculated as factor income received from abroad minus factor income paid abroad. Interest received by an Indian resident from a German bank is a return on capital owned by an Indian resident but used abroad, so it is a positive receipt in India’s NFIA. Profit earned by a foreign company in India is factor income paid abroad and reduces NFIA. Domestic wages and tourist spending do not represent factor income from abroad.
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What is the correct answer to this question?
Interest received by an Indian resident on a deposit in a German bank
Why is this the correct answer?
NFIA is calculated as factor income received from abroad minus factor income paid abroad. Interest received by an Indian resident from a German bank is a return on capital owned by an Indian resident but used abroad, so it is a positive receipt in India’s NFIA. Profit earned by a foreign company in India is factor income paid abroad and reduces NFIA. Domestic wages and tourist spending do not represent factor income from abroad.
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.
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