(a) (i) “Domestic income is always less than national income.” Do you agree with the given statement? Support your answer with valid arguments. (ii)…

No. Net Factor Income from Abroad (NFIA) needs to be added to Domestic Income to arrive at the value of National Income. Domestic Income will be less than National Income, when NFIA is positive, i.e. factor income from abroad is greater than factor income to abroad. Whereas, Domestic Income will be more than National Income, when NFIA is negative i.e. factor income from abroad is less than factor income to abroad. On the other hand, if NFIA is zero, Domestic income will be equal to National Income.

Positive externalities refer to benefits caused by one entity to another without being paid for it.

Example: Newly developed public park.

Whereas;

Negative externalities refer to harms caused by one entity to another, without being penalised for it.

Example: Smoke emitted by a factory.

Yes. In a two-sector economy model, households are the owners of factors of production (Land, Labour, Capital, Entrepreneur). Firms combine these factors of production to produce goods and services. They make factor payments (Rent, Wages, Interest, Profits) to households, which in turn, are completely spent by the households on the consumption of final goods and services.

Thus, the income earned by the factors of production flows back to the production units in the form of aggregate consumption expenditure.

Problem of double counting refers to counting the value of goods and services more than once. This leads to an overestimation of the output in the economy.

Example: A farmer had produced ₹ $\displaystyle 100$ worth of wheat for which no inputs were required. The baker had to buy ₹ $\displaystyle 50$ worth of wheat to produce bread worth ₹ 200. To estimate the net contribution of the baker, the value of wheat (₹ $\displaystyle 50$) needs to be subtracted from the value of bread. Otherwise, ₹ $\displaystyle 50$ worth of wheat will be counted twice leading to the problem of double counting.