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Class 12 Macro Economics Notes · CBSE

Net Factor Income from Abroad (NFIA)

NFIA formula, components, positive/negative/zero cases, and converting domestic income to national income. CBSE Class 12 Macroeconomics notes

Notes

What is NFIA?

NFIA refers to the difference between factor income received from the rest of the world and factor income paid to the rest of the world.

Net Factor Income from Abroad
NFIA = Factor income earned from abroad − Factor income paid abroad
Factor income from abroad is income earned by normal residents from the Rest of the World (ROW) in the form of wages and salaries, rent, interest, dividend, and retained earnings.Factor income to abroad is factor income paid to non-residents for their factor services within the domestic territory.

Converting Domestic Income to National Income

Domestic Income

Based on domestic territory

NFIA

(+) Income from abroad

(-) Income to abroad

National Income

Based on normal residents

National Income = Domestic Income + NFIA

NFIA can be Positive, Negative, or Zero
AspectCaseCondition
PositiveIncome from abroad > Income to abroadResidents earn more abroad than non-residents earn here
NegativeIncome from abroad < Income to abroadNon-residents earn more here than residents earn abroad
ZeroIncome from abroad = Income to abroadBalanced flows
NFIA is zero in a closed economy (no dealings with rest of the world).

Components of NFIA

Three main components of NFIA:

NFIA Components
NFIA = Net COE + Net Income from Property & Entrepreneurship + Net Retained Earnings

Calculating NFIA — Solved Examples

Solved Example

Problem

Factor income from abroad = 500; Factor income to abroad = 300. Calculate NFIA.

Solution

NFIA = 500 - 300 = 200

Solved Example

Problem

Factor income from abroad = 250; Factor income to abroad = 620. Calculate NFIA.

Solution

NFIA = 250 - 620 = (-) 370

Solved Example

Problem

Factor income to abroad = 150 (Factor income from abroad not mentioned = 0). Calculate NFIA.

Solution

NFIA = 0 - 150 = (-) 150

Solved Example

Problem

Factor income to abroad = (-)150. Calculate NFIA.

Solution

NFIA = 150