Question

“In a two-sector economy, National Income is always less than Domestic Income.”

Defend or refute the given statement with valid reason.

Answer 1

The statement “National income is always less than domestic income in a two-sector economy” is refuted. In a two-sector economy, National Income (NI) is the total amount of money that residents earn in the country and abroad, while Domestic Income (DI) is only the amount of money that people make in the country. Most of the time, National Income is equal to or higher than Domestic Income. The National Income will be higher than the Domestic Income if people spend money abroad or work abroad. National Income and Domestic Income will be the same if there is no Foreign Income, though. In a two-sector economy, this means that National Income is not always less than Domestic Income.