Wednesday 1 April 2020

ONLINE CLASS 5 - BASIC CONCEPTS OF NATIONAL INCOME (3)


*DAY #05          31.03.2020*
*TOPIC – BASIC CONCEPTS IN MACROECONOMICS*

*Net Factor Income from Abroad, Net Indirect Tax*


*NET FACTOR INCO ME FROM ABROAD (NFYA)*
Factor Income Received from Abroad ( FIFA) – Factor income Paid to Abroad ( FITA)
NFYA = Net Compensation of Employees + Net income from property and entrepreneurship + Net Retained earnings.
Net Factor Income from Abroad is the excess of factor incomes( rent, wages, interest and profit) earned from abroad over factor incomes( rent, wages , interest and profit ) paid to abroad. NFIA can be positive , negative or zero.
* it is positive when factor income from abroad is more than factor income paid to abroad.
It is *negative when when factor income from abroad is less than factor income paid to abroad.
it is *zero when when factor income from abroad is equal to factor income paid to abroad.

*NET INDIRECT TAX (NIT)* = Indirect Tax – Subsidies.
*INDIRECT TAXES –* Taxes impose by the government on production units.
Subsidies – Financial assistance given by the government to production units

*NORMAL RESIDENTS –* It refers to an individual or an institution who ordinarily resides in the country and whose centre of economic interest also lies in that country.
It’s not included- 1- Foreign tourist and visitors ; 2- Foreign staff of embassies, officials, diplomats and members of the armed forces of a foreign country; 3- International Organizations; 4- Employee of international organization staying less than one year; 5- Crew members of foreign vessels. Commercial travelers and seasonal workers; 6- Boarder workers.

*DOMESTIC TERRITORY –* Political frontier of a country and its also includes; 1- Ships and aircrafts owned and operated by Normal Residents between two or more countries; 2- Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of a country in the international area where they have exclusive rights of operation; and 3- Embassies, consulates and military establishments of a country located abroad.

1. Which of the following is within the domestic territory of India? (Choose the correct alternative)
(a) State Bank of India in UK
*(b) Google office in India*
(c) Office of Tata Motors in USA
(d) Russian Embassy in India
2. Foreign embassies in India are a part of India's: (Choose the correct alternative)
(a) Economic territory
*(b) Geographical territory*
(c) Both (a) and (b)
(d) None of the above
3. Out of the following, who are residents of India? (Choose the correct alternative)
(a) Indians working permanently in the office of the United Nations Organisation in New York
(b) Indians working in Indian Embassy in America
*(c) Indians working in a branch of an American Bank in India*
(d) Americans working in India embassy in America
4. Which of the following will be included in gross national product of India? (Choose the correct alternative)
(a) Profits earned by a foreign company in India
(b) Salary paid to Americans working in Indian Embassy in America
*(c) Salaries received by Indians working in Russian Embassy in India*
(d) Salaries received by Indians working in Indian Embassy in Korea
5. National income is the sum of factor incomes accruing to: (Choose the com alternative)
(a) Nationals
(b) Economic territory
*(c) Residents*
(d) Both residents and non-residents
6. Which of the following will be included in Gross Domestic Product (GDP) of India? (Choose the correct alternative)
(a) Rent received by an Indian resident from his property in Singapore
(b) Salaries received by Indian residents working in Russian embassy in India
(c) Profits earned by a branch of State Bank of India in Japan
*(d) Profits earned by standard Chartered Bank in India*
7. Factor income earned by the domestic factors of production employed in the rest of the world Factor income earned by the factors of production of the rest of the world employed in the domestic economy = ? (Choose the correct alternative)
(a) Net exports
*(b) Net factor income from abroad*
(c) Net compensation of employers
(d) Net retained earnings
8. National income is always more than the domestic income. True/False? Give reason.  *Flase*
9. Wages earned by a citizen of India working in Saudi Arabia will be included in GDP of India. True/False? Give reason.    *False*
10. Profits earned by the Korean-owned Hyundai car factory in India will be included in National income of India. True/False?     *False*
11. GDP can be greater than GNP. True/False? Give reason.      *True*
12. Which of the following are covered under the domestic territory of India?
1.  Microsoft Office in India. *Domestic Territory of India*
2. Company in India owned by a Japanese. *Domestic Territory of India*
3. Office of Reliance Industries in New York.
4. Branch of Foreign Bank in India. *Domestic Territory of India*
5. Indian Embassy in Japan. *Domestic Territory of India*
6. Branch of State Bank of India in China.
7. Russian Embassy in India.
8. Tata rented its building to Google in America.
9. An Indian Company in London.

*Identify the following as Normal Residents of India:*
(a) Indian officials working in the Indian Embassy in USA. *Yes – Normal Residents of India*
(b) A Japanese tourist who stays in India for 2 months.
(c) Indians going to Pakistan for watching the cricket match. *Yes – Normal Residents of India*
(d) Indians working in the UNO office, located in America for *Yes – Normal Residents of India*less than 1 year.
(e) Indian employees working in WHO, located in India. *Yes – Normal Residents of India*
(f) Foreign tourists visiting India for a month to see the Taj Mahal.
(g) Indian' Muslims going for the Haj pilgrimage. *Yes – Normal Residents of India*
QUESTIONS AND ANSWERS

1. Will the following factor income be included in domestic factor income of India? Give reasons.
(i) Compensation of employees to the resident of Japan working in Indian embassy in Japan.
(ii) Rent received by an Indian resident from Russian embassy in India. (CBSE Sample Question Paper 2018)
Ans. (i) Yes, it will be included as it is part of Factor income earned in domestic territory of the country.
(ii) No, as rent received by Indian resident From Russian embassy will be part of Factor Income received from abroad as Russian Embassy is not part of domestic territory of the country.

2. How will you treat the following in the calculation of Gross Domestic Product of India? Give reasons
(i) Profits med by a branch of foreign bank in India.
(ii) Salaries of Indian employees working in embassy of Japan in India.
(iii) Salary of resident of Japan working in Indian embassy in Japan.
Ans. (i) Yes, it will be included because profits are earned within the domestic territory of India.
(ii) No, it will not be included because the embassy of Japan is not a part of the domestic territory of India.
(iii) Yes, it will be included because the Indian Embassy is a part of the domestic territory of India.

3. Will the following be included in domestic factor income of India? Give reasons.
(i) Profits earned by a resident of India from his company in Singapore.
(ii) Profits earned by a company in India which is owned by a non-resident.
(iii) Profits med by a branch of State Bank of India in England.
Ans. (i) No, it will not be included as the company is located outside the domestic territory of India.
(ii) Yes, it will be included as profits are aimed within the domestic territory of India.
(iii) No, it will not be included as State Bank of India is located outside the domestic territory of India.

4. How will you nut the following in the calculation of Domestic Income of India? Give reasons.
(i) Compensation of employees to the residents of Japan working in Indian embassy in Japan.
(ii) Rent paid by the embassy of Japan in India to a resident Indian.
(iii) Salaries to Indian residents working in the Russian embassy in India.
(iv) Profits earned by Indian employees working in the US embassy in India.
Ans. (i) Yes, it will be included as the Indian embassy in Japan is a part of the domestic territory of India.
(ii) No, it will not be included as the Japanese embassy is not a part of the domestic territory of India.
(iii) No, it will not be included as the Russian embassy is not a part of the domestic territory of India.
(iv) No, it will not be included as the US embassy is not a part of the domestic territory of India.


Video #08
Basic concepts of National Income - Net Factor Income From Abroad


Video #09
Basic concepts of National Income - Net Indirect Tax

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Regards
Dr. Asad Ahmad
KV IIM, Lucknow
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