Answer to Question #222512 in Macroeconomics for GabrielIe

Question

Under what circumstances will you expect Net National Income to be greater than Gross Domestic Income?

Answer 1

Net National Income (NNI) is based on Gross Domestic Product and Gross National Income. We know that:

Gross Domestic Product = Consumption + Investment + Government Spending + Net exports

Gross National Income = GDP + Net foreign factor income (NFFI)

Net National Income = GDP + Net foreign factor income (NFFI) - Indirect Taxes - Depreciation

On the other hand, Gross Domestic Income = employee compensation + rent income + interest income + profits +depreciation + indirect taxes - subsidies. Normally, Gross Domestic Income = Gross Domestic Product.

From the above formulas, it is clear that the differences between Gross Domestic Income and Net National Income emanate from Net foreign factor income, indirect taxes, and depreciation. Therefore, one of the circumstances that can cause the Net National Income to exceed Gross Domestic Income is high levels of foreign income receipts from abroad that surpass income paid abroad. High levels of income from abroad imply a positive Net foreign factor income and hence higher levels of Net National Income.  Also, when there is a reduction in depreciation and indirect taxes, the Net National income can be higher than the Gross Domestic Income.