Question

What is the difference between National Income and domestic Income?

Answer 1

National income is defined as the sum total of factor incomes viz. rent, wages, interest and profit accruing to the normal residents of a country for their productive services during a definite period of time. Income is a flow. As such it is related to a particular period of time. Normally this period is of one year duration. Thus, National Income is the earned income by the normal residents of a country during one year.

Whereas domestic income is the sum total of factor incomes generated by all the production units located within domestic territory of a country during an accounting year.The point to be noted is that factor incomes should be generated within the domestic territory of a country irrespective of the fact whether producers are normal residents (citizens) or non-residents (i.e., foreigners).Example: When depreciation is included in the national income of a country it is known as gross national income. Conversely when depreciation is deducted, it is known as net national income. When net factor income earned from abroad is deducted from the national income then the remaining income will be called as the domestic income. Therefore,

Net National Income = Gross National Income – Depreciation