The difference between national income and domestic income is __________. Choose the correct answer from the following.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : Net factor income from abroad
The difference between national income and domestic income is primarily accounted for by net factor income from abroad.
- National income includes all income earned domestically by residents (including net factor income from abroad).
- Domestic income includes only income earned within the domestic territory, excluding net factor income from abroad.
Net factor income from abroad takes into account the income earned by domestic factors of production (labor and capital) from foreign sources minus the income earned by foreign factors of production within the domestic economy. This includes wages, profits, and other factor incomes that flow into or out of the country.