Question

“National Income is always equal to Domestic income in a two-sector economy.”

Defend or refute the given statement with valid reasons.

Answer 1

1. The statement “National Income is always equal to Domestic Income in a two-sector economy” is incorrect.
2. Because factor income received by domestic citizens (both domestically and internationally) is included in national income.
   
   • National Income = Domestic Income + Net Factor Income from Abroad (NFIA)
3. However, domestic income refers solely to money earned within the nation’s borders, regardless of the source (residents or non-residents). excludes domestic residents’ foreign-earned income.
4. There is a difference between National and Domestic Income even in a two-sector economy, because the statement doesn’t account for Net Factor Income from Abroad (NFIA). When NFIA is zero, equality only holds.
5. Final Verdict: The statement is refuted.