The net factor income earned within the domestic territory of a country must be equal to:

Question

Accepted Answer

The correct option is 2: Net Domestic product at factor cost

The core concept being tested here is the definition of national income aggregates. Net factor income earned within the domestic territory of a country refers to the total monetary value of all final goods and services produced within the geographical boundaries of that country during an accounting year, excluding depreciation (Net) and valued at the cost of the factors of production (land, labor, capital, entrepreneurship). This aggregate is precisely defined as Net Domestic Product at Factor Cost (NDP at FC). NDP at FC is the sum of factor payments, which are rent, wages, interest, and profit. Since the income is earned *within the domestic territory*, the concept of 'Domestic' is appropriate, and since the income is calculated before considering the effect of subsidies and indirect taxes, it must be measured at 'Factor Cost'.

The incorrect option is 1: Personal income
Personal Income is the income actually received by households and individuals from all sources. It is derived from National Income by adding transfer payments and subtracting undistributed profits, corporate taxes, and net interest payments made by households. It is a post-distribution concept, unlike NDP at FC.

The incorrect option is 3: Net Domestic product at market price
Net Domestic Product at Market Price (NDP at MP) measures the net value of goods and services produced domestically, but valued at market prices (the price consumers pay). The relationship is NDP at MP = NDP at FC + Net Indirect Taxes (Indirect Taxes - Subsidies). Since the question asks for "net factor income earned," we must use factor cost, not market price.

The incorrect option is 4: Net National product at factor cost
Net National Product at Factor Cost (NNP at FC) is synonymous with National Income. It includes factor income earned by residents from abroad (Net Factor Income from Abroad) in addition to what is earned domestically. Since the question specifically limits the scope to income earned *within the domestic territory*, the broader concept of 'National' product is incorrect.